hedge ratio

(redirected from Hedge Ratios)

Hedge ratio (delta)

For options, ratio between the change in an option's theoretical value and the change in price of the underlying stock at a given point in time. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2000 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). See: Delta.

Hedge Ratio

1. A ratio of the value of the proportion of a position that is hedged to the value of the entire position. A hedge ratio shows how exposed an investment is to risk. For example, if a hedge ratio is .65, then 65% of the investment is protected from risk, while 35% remains exposed.

2. A ratio of the value of a futures contract to the value of the underlying asset. This is used to identify and minimize risk in the contract.

hedge ratio

The number of options required to offset the change in value due to a price change in 100 shares of common stock. For example, if two options are needed to offset value changes for 100 shares of stock, the hedge ratio is 2.
References in periodicals archive ?
Hedge portfolios A, B, and C in Table 2 give the empirical results of the hedge effectiveness based on three different hedge ratios with the contemporaneous, 1-day-later, and 2-day-later data, respectively.
They've been quiet for the first six to seven months of the year and their hedge ratios were low, but they're now coming out to hedge.
Table 4 reports ex-ante (before the resolution of uncertainty) risk minimising hedge ratios for each year over 1990-2013 and contrasts the performance of unhedged portfolio with four ex-ante hedged portfolios.
After discussing the volatile behavior of agricultural prices, the static and time varying optimal hedge ratios are estimated through several methods.
4) Corporate hedging literature has, however, consistently found that actual hedge ratios for commodity firms are significantly lower than those prescribed under the risk-minimization approach, because while making a hedging decision, firms consider not only risk minimization but also the hedging costs incurred.
Studies have shown that using fixed hedge ratios across all currency pairs is not an optimal solution.
Looking at the hedge ratios, they fell year over year in general, so it looks to me like some respondents may have unwound some LDI hedging.
publishes the results of this analysis and examines the overall excess returns achieved by active currency overlay managers against benchmark, across different styles, hedge ratios and base currencies.
The reported hedge ratios may vary significantly, depending on Fortum's actions on the electricity derivatives markets.
Optimal hedge ratios were determined across all months, all seasons, individual months, and by individual season.
SSgA says Dynamic Strategic Hedging has the capacity to reduce currency losses because, unlike traditional 'static' hedging, it tailors and systematically adjusts hedge ratios for each currency pair in a portfolio according to their deviation from long-term fair-value.
Asset-management companies will be required to provide customers more information on forex hedge costs and effects through prospectus and introduce investment products with different forex hedge ratios.