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What is Optimal Hedging for Currency Returns about?

The document discusses optimal hedging of uncertain foreign currency returns. It derives an analytical solution for the optimal hedging policy ratio to minimize risks from uncertain future cash flows and exchange rates. The optimal hedging ratio formula balances the volatility of expected returns, expected spot exchange rates, and the correlation between spot/forward exchange rate returns and investment strategy returns. A numerical example with USD and SGD exchange rates illustrates how the optimal ratio v

Author

Abhishek Ram

Language

EN