• OpenMetrics

Dynamic Currency Hedging – Proof of Concept

Updated: Apr 24, 2019


Sample Use Case for a FX Portfolio

With a global scope of investment activities the involved currency risks for larger portfolios can be substantial and have to be managed properly.

Typical approaches are either not to hedge at all or to hedge the existing currency exposure to certain extent statically (e.g. 50% or even 100%), which may lead to significant costs for long term commitments.

In addition to the costs of long-term static hedging, which of course protects against losses triggered by the external currency, it also hinders to participate in favorable currency moves.

The aim of this proof of concept is to assess the potential of a dynamic hedging approach by applying advanced statistical methods to the exchange rates of several currency pairs.

Based on the measured currency stability, the hedge ratios are adjusted on a rolling, monthly basis. All simulations are calculated out-of-sample to ensure the highest accuracy in the expected results.



OpenMetrics Solutions LLC

Dufourstrasse 47

8008 Zürich

contact@openmetrics.ch

www.openmetrics.ch

  • LinkedIn Social Icon
SMS-Logo-1h-300dpi_RGB.png

swiss made software is the nationally and internationally recognized symbol for Swiss quality in software development.