perfect hedge

Perfect hedge

A situation in which the profit and loss from the underlying asset and the hedge position are equal.

Perfect Hedge

A hedge on an investment that eliminates the risk on another investment entirely. Perfect hedges are fairly rare as most investments carry at least a little unique risk that cannot be hedged. However, an example of a perfect hedge is a position on option that completely offsets a position in the underlying asset. While perfect hedges eliminate risk, they also greatly reduce or sometimes eliminate the potential for a return.

perfect hedge

A hedge that exactly offsets any gains or losses from an existing investment position. An example of a perfect hedge is the short sale of an owned security in order to lock in an existing profit and transfer it to a subsequent tax year. Because very few hedges are perfect, most of them operate merely to offset a portion of losses or gains. See also risk hedge.
Mentioned in ?
References in periodicals archive ?
If an interest rate swap contract meets certain criteria and its critical terms match the other conditions of ASC 815, the hedge contract may possibly be a perfect hedge and therefore qualify for adoption of a simplified accounting method (i.
However, gold is a perfect hedge against US dollar weakness, and ADIB is advising clients with high exposure to US dollar-denominated assets to take a position in the precious metal.
Also the paradigm of a complete financial market, where all derivatives admit a perfect hedge, becomes the exception rather than the rule.
While not a perfect hedge, the intended purpose is to avoid a market decline.
Even though the usage of wacd is comply with shariah principle, but it does not gives a perfect hedge to the customers.
Brooks and Chaves oversee what the FBI calls "Operation Perfect Hedge," which has led to more than 60 convictions of hedge fund traders, analysts and industry consultants.
The difficulty is that there's no perfect hedge against it.
Because there is no perfect hedge for liabilities, even for plans which attempt to fully immunize -- allocating 100% of assets to long bonds -- implementation risks still need to be managed.
I'd love to find the perfect hedge and we're still looking, but for now we have something that works," Lautch says.
Investors are no doubt asking themselves about inflation-hedging investments, but unfortunately there is no "magic bullet" - no single investment that serves as a perfect hedge in all periods of inflation.
The particular status of the insurance market does not allow to invest in external assets that could provide a perfect hedge of the mortality risk.