What is Hedge Ratio?
Hedge Ratio The proportion of a position that is hedged via derivative instruments, calculated as the value of the hedging instrument divided by the value of the underlying exposure. Used to minimize portfolio risk.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Hedge Ratio” Used in Practice?
Portfolio managers calculate the hedge ratio to determine the number of futures contracts needed to protect against adverse price movements.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Hedge Ratio?
The proportion of a position that is hedged via derivative instruments, calculated as the value of the hedging instrument divided by the value of the underlying exposure. Used to minimize portfolio risk.
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