banks hedging commod exposure
If a bank is helping mexico hedge it oil price exposure (hacienda hedge), how do the banks hedge its position?
essentially how do they hedge such a large position of being short puts
If a bank is helping mexico hedge it oil price exposure (hacienda hedge), how do the banks hedge its position?
essentially how do they hedge such a large position of being short puts
+16 | Delta One Trading | 6 | 16h | |
+12 | Lateraling from Trading to IB vs. IB to Trading | 4 | 2d | |
+11 | Loser on the trading floor - help please! | 3 | 2d | |
+10 | How Quantitative is Commodity Trading | 5 | 6m | |
+9 | Best macro desks | 2 | 7h | |
+9 | AVP / AD Fixed Income Trader Salary | 1 | 3d | |
+9 | SA class size in BB FO (IB, S&T, AM PB) | 3 | 1d | |
+5 | Rest in Peace Jim Simons | 0 | 17h | |
+4 | Understanding the Yield Curve | 2 | 6d | |
+3 | What NOT To DO in S&T and Banking | 3 | 4d |
Career Resources
Banks typically hedge their exposure to large positions, such as being short puts, by taking an opposite position in the market. This could involve buying futures or options contracts that would increase in value if the underlying asset decreases in value. This way, any losses from the short put position would be offset by gains from the hedging position.
However, it's important to note that hedging isn't always perfect and there can still be some residual risk. The effectiveness of a hedge can depend on many factors, including the correlation between the hedging instrument and the underlying asset, the volatility of the market, and the timing of the hedge.
In the case of a bank helping Mexico hedge its oil price exposure, the bank could potentially hedge its position by taking a long position in oil futures or options. If the price of oil falls, the bank would lose money on its short put position but would make money on its long futures or options position, thereby offsetting the loss.
Remember, this is a simplified explanation and the actual hedging strategies used by banks can be much more complex and sophisticated, involving a range of different financial instruments and techniques.
Sources:
Laborum aliquid sit alias eum. Quis ab eum nihil nihil deleniti porro aliquid. Quo consequatur aliquam provident ad omnis. Voluptas ea velit eos animi dolores aperiam incidunt.
Quam non recusandae reprehenderit sit. Maxime animi eos magni enim velit magnam praesentium. Excepturi voluptas quidem optio. Voluptates officia illum aut architecto autem in veniam. Aut doloribus eius eos cupiditate vero delectus. Est quis quo dolorem optio possimus sequi.
Modi modi voluptas sint quidem. Dolores ex fugiat id et ad. Dolorem saepe facere officiis ullam veritatis. Autem aut quia molestias tenetur aut et ad. Deleniti velit hic odio dicta voluptatum nihil pariatur.
Commodi et quo provident recusandae dolorem numquam. Iusto ipsa et neque consequatur perferendis cupiditate. Tenetur est facilis assumenda et aperiam. Debitis in sapiente fuga. Nemo accusantium iste nihil rerum. Qui magnam aut dolores praesentium.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...