Example and Types of Hedging Strategies

How to Use Hedging Strategies to Minimize Market Risks

Hedging strategies protect investments from market volatility and losses. They involve using instruments like options, futures, and swaps to offset potential losses in investments. By carefully balancing exposure, these strategies help protect portfolios, stabilize returns, and ensure positive financial outcome.
The image shows a desk with a laptop, financial documents and a calculator. The documents are filled with charts and graphs and two people are looking at them, likely discussing hedging strategies.

Overview

In the dynamic and often unpredictable world of financial markets, investors and businesses are constantly exposed to various risks that can impact their portfolios and operations. These risks can arise from factors such as market volatility, interest rate fluctuations, currency movements, commodity price changes, and geopolitical events, among others. To navigate these uncertainties and protect against potential losses, financial market participants employ hedging strategies. Hedging is a risk management technique that involves taking offsetting positions to reduce or eliminate the impact of adverse price movements. This article by Academic Block will explore the concept of hedging, different hedging strategies, and their applications in managing risk effectively.

Understanding the Hedging

At its core, hedging is about minimizing the downside risk while allowing for potential upside gains. It is a form of insurance against adverse market movements that can erode profits or lead to significant losses. Hedging can be applied to various financial instruments, including stocks, bonds, currencies, commodities, and derivatives. The primary objective of hedging is to protect against unfavorable price movements without necessarily sacrificing potential gains entirely.

One of the fundamental principles of hedging is the concept of correlation. Correlation measures the relationship between the price movements of two assets. A perfect positive correlation (+1) implies that two assets move in tandem, while a perfect negative correlation (-1) means they move in opposite directions. Hedging strategies often rely on assets with negative correlations to offset losses in one position with gains in another.

Types of Hedging Strategies

  1. Futures and Forwards Contracts: Futures and forwards contracts are derivative instruments that allow parties to buy or sell assets at a predetermined price on a future date. These contracts are commonly used to hedge against price fluctuations in commodities, currencies, and interest rates. For example, a company that relies on imported raw materials can use a futures contract to lock in the purchase price, protecting against potential price increases.

  2. Options Hedging: Options provide the right, but not the obligation, to buy (call option) or sell (put option) an asset at a specified price within a specific time frame. Option hedging strategies include protective puts, covered calls, and collars. Protective puts involve buying put options to limit downside risk, while covered calls involve selling call options against an existing stock position to generate income. Collars combine options to establish a price range within which the asset's value is protected.

  3. Currency Hedging: In international business and investment, currency fluctuations can significantly impact returns. Currency hedging involves using financial instruments such as forward contracts, options, and currency swaps to protect against adverse exchange rate movements. Multinational corporations often use currency hedging to mitigate the risk of currency fluctuations impacting their profits.

  4. Interest Rate Hedging: Interest rate hedging is crucial for entities exposed to interest rate risk, such as banks, mortgage lenders, and bond investors. Instruments like interest rate swaps, futures, and options help manage exposure to fluctuations in interest rates. For instance, a company with floating-rate debt may enter into an interest rate swap to convert the variable interest payments into fixed payments, reducing uncertainty.

  5. Stock Portfolio Hedging: Investors can hedge their stock portfolios using various strategies. For example, purchasing put options on individual stocks or stock indices can protect against market downturns. Short selling is another hedging technique where investors borrow and sell securities they believe will decline in value, aiming to profit from the price decline while offsetting potential losses in their long positions.

Hedging in Different Sectors

Hedging strategies are widely used across various sectors, including finance, agriculture, energy, and manufacturing. Each sector faces different risks, which influence the type of hedging strategy employed.

  1. Hedging in Finance : In the financial sector, hedging is predominantly used to manage risks associated with interest rates, stock prices, and foreign exchange rates. Investment banks, hedge funds, and asset managers use sophisticated hedging techniques to protect portfolios from market volatility. A common approach is to use options and futures contracts to hedge against fluctuations in stock prices or interest rates. For example, a bondholder might use interest rate futures to hedge against rising rates that could lower the bond’s value.

  2. Hedging in Agriculture : Agricultural producers are particularly vulnerable to price fluctuations caused by weather conditions, supply and demand imbalances, and other external factors. Farmers, for example, often use futures contracts to lock in prices for their crops ahead of harvest. This ensures that they can sell their products at a predetermined price, reducing the uncertainty of future market conditions. Commodities such as wheat, corn, and soybeans are often subject to price hedging through futures and options markets.

  3. Hedging in Energy : The energy sector is heavily influenced by the volatility of commodity prices, such as crude oil, natural gas, and coal. Energy producers, refiners, and utilities often use hedging strategies to manage the financial impact of price changes. For instance, oil producers may sell futures contracts to lock in prices for future delivery, while airlines may hedge against rising fuel costs by purchasing fuel derivatives. Hedging in energy markets plays a critical role in managing cash flows and protecting profit margins.

  4. Hedging in Manufacturing : Manufacturers who rely on raw materials such as metals, chemicals, and plastics face the risk of price fluctuations that could affect production costs. By employing hedging strategies, manufacturers can lock in prices for raw materials, ensuring stable input costs and minimizing production disruptions. Companies may use commodity futures contracts or options to hedge against rising costs in their supply chain.

The Advantages and Disadvantages of Hedging

While hedging offers several benefits, it is not without its drawbacks. Understanding the pros and cons is crucial for deciding whether to hedge and choosing the appropriate strategy.

Advantages of Hedging

  1. Risk Reduction : The primary advantage of hedging is the ability to reduce exposure to market volatility and price fluctuations. By offsetting potential losses in one position, a company or investor can protect its capital and ensure more stable returns.

  2. Predictability : Hedging provides greater predictability in financial planning. For businesses, it can help to forecast revenues and expenses with more certainty, particularly in industries where prices are subject to wide fluctuations.

  3. Capital Preservation : Hedging strategies can help preserve capital by limiting potential losses. This is especially valuable for investors or companies that cannot afford significant risk exposure.

Disadvantages of Hedging

  1. Cost : Hedging strategies often involve paying premiums for options or making other financial commitments that can add up over time. For instance, options contracts can be expensive, and the cost of hedging may outweigh the benefits in some cases.

  2. Complexity : Hedging strategies can be complex and may require advanced knowledge of financial instruments and market conditions. Without proper expertise, businesses or individuals may mismanage their hedging positions, leading to potential losses.

  3. Limited Profit Potential : Hedging protects against losses, but it also limits the potential for profits. For example, by hedging against a potential increase in commodity prices, a business may forgo the opportunity to benefit from favorable price movements.

Delta Hedging vs Gamma Hedging

Aspect
Delta Hedging
Gamma Hedging
Definition
A strategy to neutralize the sensitivity of an option's price to small changes in the underlying asset's price.
A strategy to reduce the sensitivity of Delta to changes in the underlying asset’s price (second-order effect).
Focus
Primarily focuses on managing first-order risk (Delta), which measures the rate of change in the option's price relative to the underlying.
Focuses on managing second-order risk (Gamma), which measures the rate of change in Delta relative to the underlying.
Objective
To maintain a neutral Delta position to prevent profit or loss from small movements in the underlying asset.
To stabilize Delta itself, ensuring it doesn’t change significantly due to movements in the underlying asset.
Key Metric
Delta (rate of change of option price with respect to the underlying price).
Gamma (rate of change of Delta with respect to the underlying price).
Complexity
Simpler to implement and widely used for basic hedging needs.
More complex and typically used by advanced traders or institutions managing large portfolios.
Execution
Requires frequent rebalancing of the hedge as the underlying asset’s price changes.
Requires hedging with additional options to manage Gamma risk effectively.
Risk Mitigated
Neutralizes price sensitivity to small changes in the underlying asset.
Neutralizes risk of Delta fluctuations due to larger or sudden changes in the underlying asset’s price.
Cost
Lower cost, as it involves basic adjustments to maintain a Delta-neutral position.
Higher cost, as it often involves trading multiple options for proper Gamma hedging.
Use Case
Commonly used by traders to hedge short-term price movements.
Typically used in scenarios with highly volatile underlying assets or for portfolios with large exposures.
Portfolio Impact
Reduces directional risk but may still leave the portfolio exposed to Gamma and other second-order risks.
Reduces both directional and Delta fluctuation risks, providing smoother portfolio behavior.
Ideal For
Short-term traders or those focusing on minimizing small price movement risks.
Advanced traders or institutions managing long-term or large-scale risks in volatile markets.
Example
A trader uses futures or the underlying asset to hedge the Delta of an option position.
A trader adds another option (e.g., buying calls or puts) to offset Gamma risk while managing Delta.

Understanding Hedging using a simple example

Imagine you are a farmer who grows corn. Your main source of income comes from selling corn in the market. However, you are concerned about the price of corn fluctuating, which could impact your profits. To protect yourself from potential losses due to price drops, you decide to use a hedging strategy.

You start by entering into a futures contract with a buyer. This futures contract specifies that you will sell a certain amount of corn at a predetermined price on a future date, let's say three months from now. The agreed-upon price is based on the current market price of corn.

Now, let's consider two scenarios:

  1. Scenario A: Corn Prices Decrease If the price of corn decreases by the time the futures contract expires, you would experience a loss if you sold your corn at the lower market price. However, since you have a futures contract in place, you can sell your corn at the pre-agreed price specified in the contract. This offsets the losses you would have incurred if you had sold at the lower market price, thus protecting your income.

  2. Scenario B: Corn Prices Increase On the other hand, if the price of corn increases by the time the futures contract expires, you would benefit from selling your corn at the higher market price. However, you are still obligated to sell at the lower price specified in the futures contract. In this case, while you miss out on potential gains from the price increase, your hedging strategy ensures that you lock in a favorable selling price, reducing the impact of the price rise on your profits.

In both scenarios, the futures contract acts as a hedge against adverse price movements. It allows you to manage the risk of price fluctuations, providing a level of certainty and stability to your income from corn sales. This basic example illustrates how hedging can help protect against downside risk while also limiting potential upside gains, highlighting the trade-off inherent in hedging strategies.

Practical Applications of Hedging

Hedging strategies find widespread applications across different sectors and scenarios:

  1. Commodity Producers: Agricultural producers, energy companies, and mining firms often use hedging to manage price risks associated with their products. Futures contracts and options allow them to lock in favorable prices and protect against market downturns.

  2. Importers and Exporters: Businesses engaged in international trade face currency risk due to fluctuating exchange rates. Currency hedging helps them mitigate the impact of currency fluctuations on their profit margins and cash flows.

  3. Investment Portfolios: Portfolio managers and individual investors employ hedging techniques to protect against market volatility and downside risk. By diversifying their investments and using derivatives, they can achieve a more balanced risk-return profile.

  4. Risk-Averse Investors: Conservative investors who prioritize capital preservation over aggressive growth may use hedging strategies extensively. They aim to minimize losses during market downturns while participating in potential upside movements.

Challenges and Considerations

While hedging can be an effective risk management tool, it comes with certain challenges and considerations:

  1. Cost of Hedging: Implementing hedging strategies often incurs costs such as transaction fees, bid-ask spreads, and premium payments for options. These costs can impact overall returns and need to be carefully evaluated against the potential benefits of hedging.

  2. Over-Hedging vs. Under-Hedging: Finding the right balance between over-hedging (too much protection leading to missed opportunities) and under-hedging (insufficient protection against losses) is crucial. It requires a thorough analysis of risk exposure and market conditions.

  3. Counterparty Risk: Hedging instruments such as derivatives involve counterparties, and the risk of default or non-performance by the counterparty must be considered. Establishing agreements with reputable and reliable counterparties is essential to mitigate this risk.

  4. Regulatory Compliance: Depending on the jurisdiction and type of hedging instruments used, there may be regulatory requirements and compliance considerations. It's important for market participants to adhere to relevant regulations and reporting standards.

Final Words

Hedging strategies play a vital role in managing risk and preserving value in financial markets. Whether it's protecting against price fluctuations, currency risks, interest rate movements, or market volatility, hedging provides investors, businesses, and institutions with tools to navigate uncertain environments. However, effective hedging requires a deep understanding of risk exposures, careful planning, and continuous monitoring to adjust strategies as market conditions evolve. In this article by Academic Block we have learned that, by integrating hedging techniques into their overall risk management framework, market participants can enhance resilience and optimize risk-adjusted returns in today's complex and interconnected global markets. Please provide your comments below, it will help us in improving this article. Thanks for reading!

This Article will answer your questions like:

+ Hedging meaning with example >

Hedging is a risk management strategy used to offset potential losses by taking an opposite position in a related asset. For example, a farmer might use futures contracts to lock in the price of crops, ensuring a fixed revenue despite potential price fluctuations. This provides financial stability by balancing risks from market volatility. Hedging can be done with various instruments like options, futures, and swaps, and is often used in investments, foreign exchange, and commodity markets.

+ What do hedge funds invest in? >

Hedge funds invest in a wide range of assets, including stocks, bonds, commodities, currencies, real estate, and derivatives. They typically employ strategies such as long/short equity, market neutral, event-driven, and arbitrage to maximize returns. Hedge funds often use leverage and derivatives to increase potential gains. These funds cater to accredited investors and have a higher risk profile, focusing on achieving absolute returns regardless of market conditions. Their strategies can vary significantly depending on the fund's objectives.

+ What is hedging funds? >

Hedge funds are private investment vehicles that pool capital from accredited investors to employ advanced strategies, including leverage, short selling, and derivatives, to achieve high returns. These funds aim to generate positive returns regardless of market conditions by using various hedging techniques. Hedge funds typically target sophisticated investors and have higher fees and risks. The term "hedging funds" refers to the fund's use of hedging strategies to manage risk and protect against losses in volatile markets.

+ What is an example of a hedge fund strategy? >

An example of a hedge fund strategy is the "long/short equity" strategy, where the fund buys undervalued stocks (long positions) and sells overvalued stocks (short positions). This strategy aims to profit from the price differences between the long and short positions, regardless of overall market movements. Hedge funds using this strategy try to mitigate risk by balancing the exposure to market fluctuations, providing a more stable return in both rising and falling markets.

+ What are the three types of hedging? >

The three common types of hedging are: 1. **Currency Hedging** – Protects against fluctuations in exchange rates. 2. **Commodity Hedging** – Involves using futures or options to protect against price volatility in commodities like oil or gold. 3. **Interest Rate Hedging** – Aims to manage exposure to interest rate changes, commonly done with swaps or futures. Each type helps mitigate risk in specific financial areas, ensuring a more predictable outcome for businesses and investors.

+ What are the 3 common hedging strategies? >

The three common hedging strategies are: 1. **Forward Contracts** – Agreements to buy or sell assets at a future date, protecting against price fluctuations. 2. **Options** – Derivatives that give the right, but not the obligation, to buy or sell an asset at a set price. 3. **Swaps** – Agreements to exchange cash flows based on underlying assets, often used for interest rate or currency exposure. These strategies help protect against market uncertainties and mitigate potential losses.

+ What is the Hedging in Finance meaning? >

In finance, hedging refers to taking a position in a financial asset or market to offset the risk of adverse price movements in an underlying asset. The goal is to minimize the potential for loss by balancing risk exposure. Common hedging instruments include derivatives such as options, futures, and swaps. Investors and companies use hedging strategies to protect themselves against price fluctuations, interest rate changes, currency volatility, or other financial risks that could negatively impact their financial stability.

+ What is FX hedging strategy? >

FX hedging strategy is used to protect against fluctuations in foreign exchange rates. Companies and investors use it to manage the risk of adverse currency movements that may affect profits, asset values, or liabilities. Common tools for FX hedging include forward contracts, options, and currency swaps. By locking in exchange rates in advance, businesses can stabilize cash flow and avoid losses from currency volatility. It is particularly useful for companies with international operations or foreign investments.

+ What is the best forex hedging strategy? >

The best forex hedging strategy depends on the trader's objectives and risk appetite. One effective strategy is the **Currency Options** strategy, which allows traders to protect against adverse price movements while retaining potential profit. Another popular method is the **Forex Forward Contracts**, where traders lock in exchange rates for future transactions. Combining these tools with **correlation-based strategies** can also reduce risks when trading multiple currency pairs, providing more balanced hedging results.

+ Name some popular hedging company. >

Some popular companies that engage in hedging strategies include: 1. **Goldman Sachs** – Known for its use of derivatives and sophisticated hedging techniques in its investment management services. 2. **JPMorgan Chase** – Offers hedging solutions for both corporate and institutional clients, including interest rate and currency hedging. 3. **Barclays** – Provides a range of hedging products, including options, futures, and swaps, to mitigate financial risks. 4. **Citigroup** – Offers derivatives and risk management strategies to hedge against market fluctuations.

+ How do options contracts work in hedging strategies? >

Options contracts are commonly used in hedging strategies to manage the risk of price fluctuations. An investor can purchase a "put" option to protect against a potential decline in the value of an asset or a "call" option to hedge against rising prices. By paying a premium for these options, the investor gains the right (but not the obligation) to buy or sell the asset at a predetermined price, thereby limiting potential losses while maintaining the opportunity for profit.

+ What are the best hedging strategies for currency risk? >

The best hedging strategies for currency risk include **forward contracts**, **currency options**, and **currency swaps**. Forward contracts allow companies to lock in exchange rates for future transactions. Currency options provide flexibility, offering the right to exchange currencies at a fixed rate. Currency swaps allow the exchange of currency cash flows at fixed intervals. These strategies help businesses manage the risk of adverse currency fluctuations, ensuring stability in international transactions and operations.

+ What are some common mistakes to avoid in hedging strategies? >

Common mistakes to avoid in hedging strategies include over-hedging, where an investor hedges too much of their position, potentially limiting profits. Another mistake is **ignoring transaction costs**, as frequent hedging can erode returns. **Misjudging market conditions** can also lead to ineffective hedging, as strategies based on incorrect assumptions may fail. Finally, **lack of diversification** in hedging instruments can increase exposure to risk, while hedging too early or too late may also result in missed opportunities or unnecessary costs.

+ What is the difference between delta hedging and beta hedging? >

**Delta hedging** focuses on neutralizing the price movements of an underlying asset by adjusting the number of positions held in options. It seeks to offset the risk of changes in the asset's price. In contrast, **beta hedging** involves balancing exposure to systematic risk (market risk) by adjusting the portfolio’s beta, ensuring it mirrors the overall market's movements. While delta hedging targets price movements in individual securities, beta hedging addresses broader market-wide risks and seeks to manage overall portfolio risk.

+ What are the 3 common hedge fund strategies to reduce market risk? >

Three common hedge fund strategies to reduce market risk include: 1. **Market-neutral strategy** – Involves balancing long and short positions to eliminate market risk. 2. **Global macro strategy** – Focuses on investing in large-scale market trends, including currencies and commodities, while hedging against broad market fluctuations. 3. **Arbitrage strategy** – Seeks to exploit price discrepancies between related assets while minimizing exposure to broader market movements. These strategies help hedge funds reduce market risk by targeting non-correlated returns.

+ What is the difference between currency hedging and strategic hedging? >

**Currency hedging** primarily aims to protect against the risks of fluctuating exchange rates. It typically involves using financial instruments like forwards, options, and swaps to mitigate potential losses from adverse currency movements. On the other hand, **strategic hedging** is a broader approach, often involving a combination of financial instruments and organizational strategies. It includes actions taken by companies to reduce risks from various sources, such as political, economic, and currency risks, aiming for long-term stability and competitive advantage.

+ What are the key considerations when implementing interest rate hedging strategies? >

Key considerations when implementing interest rate hedging strategies include understanding the exposure to interest rate movements, the timing of the hedge, and the type of instruments to use. For example, swaps, futures, and options can help manage interest rate risks. The cost of the hedge, potential returns, and the alignment with the company's risk tolerance must also be assessed. Additionally, it’s important to account for market conditions, economic outlook, and regulatory factors that could impact interest rates and hedge effectiveness.

Risk Involved in Hedging

Basis Risk: Basis risk arises when there is imperfect correlation between the hedged asset and the hedging instrument. For example, if a futures contract used for hedging does not perfectly track the price movements of the underlying asset, it can lead to basis risk. This can result in losses if the correlation between the two deviates significantly.

Counterparty Risk: Hedging often involves entering into contracts or agreements with counterparties, such as derivatives dealers or financial institutions. There is a risk that the counterparty may default on its obligations or fail to fulfill the terms of the hedging agreement. This can expose the hedger to financial losses and disruptions in hedging strategies.

Liquidity Risk: In certain markets, liquidity risk can affect hedging strategies. If the hedging instrument or market lacks sufficient liquidity, it may be challenging to enter or exit positions at desired prices. This can lead to slippage and increased transaction costs, impacting the effectiveness of hedging.

Cost of Hedging: Implementing hedging strategies incurs costs such as transaction fees, bid-ask spreads, and premium payments for options or other derivatives. These costs reduce the net returns from hedged positions and need to be carefully managed and evaluated against the benefits of hedging.

Over-Hedging or Under-Hedging: Finding the right balance in hedging—avoiding both over-hedging (too much protection leading to missed opportunities) and under-hedging (insufficient protection against losses)—is essential. Misjudging risk exposures or market conditions can result in ineffective hedging outcomes.

Market Risk: While hedging aims to mitigate specific risks, it does not eliminate overall market risk. Factors such as macroeconomic trends, geopolitical events, and systemic shocks can still impact asset prices and market conditions, affecting hedged positions.

Opportunity Cost: Hedging strategies often involve trade-offs between risk reduction and potential gains. By hedging against downside risk, investors may miss out on opportunities for higher returns if markets move favorably. This opportunity cost is inherent in many hedging decisions.

Complexity and Execution Risks: Some hedging strategies, especially those involving complex derivatives or structured products, can be challenging to understand and execute correctly. Inadequate risk assessment, improper execution, or mismanagement of hedging positions can lead to unexpected losses.

Facts on Hedging Strategies

Purpose: The primary purpose of hedging is to reduce or eliminate the impact of market fluctuations on portfolios, investments, or operations. It is a proactive approach to managing risk and preserving capital.

Types of Risks: Hedging can be applied to various types of risks, including market risk (price fluctuations), currency risk (exchange rate movements), interest rate risk (changes in interest rates), commodity price risk (fluctuations in commodity prices), and geopolitical risk (political events impacting markets).

Instruments: Hedging strategies utilize a range of financial instruments such as futures contracts, options, swaps, forwards, and derivatives. These instruments allow market participants to take offsetting positions that provide protection against adverse price movements.

Costs: Implementing hedging strategies incurs costs such as transaction fees, bid-ask spreads, and premium payments for options. These costs need to be considered and evaluated against the potential benefits of hedging.

Hedging vs. Speculation: While hedging aims to protect against losses, speculation involves taking deliberate risks to generate profits from price movements. Hedging is more conservative and focused on risk mitigation, while speculation is often more aggressive and profit-driven.

Examples of Hedging: Common examples of hedging include using futures contracts to hedge commodity price risks, options to hedge stock market risks, currency swaps to hedge foreign exchange risks, and interest rate swaps to hedge interest rate risks.

Counterparty Risk: Hedging strategies involving derivatives and contracts expose participants to counterparty risk—the risk that the other party may default or fail to fulfill their obligations. Managing counterparty risk is essential in effective hedging.

Regulatory Considerations: Depending on the jurisdiction and type of hedging instruments used, there may be regulatory requirements and compliance considerations that market participants need to adhere to.

Impact on Returns: Hedging strategies can impact investment returns. While they reduce downside risk, they may also limit potential upside gains. Finding the right balance between risk management and return optimization is crucial in hedging.

Applications: Hedging strategies find applications across various sectors, including agriculture, energy, finance, international trade, and investment management. Businesses, investors, and institutions use hedging to manage risk exposures and enhance financial resilience.

Academic References on Hedging Strategies

  1. Hull, J. C. (2018). Options, Futures, and Other Derivatives (10th ed.). Pearson.
  2. McDonald, R. L. (2014). Derivatives Markets (3rd ed.). Pearson.
  3. Trennepohl, G. L., & Reck, J. L. (2013). Corporate Risk Management (2nd ed.). Wiley.
  4. Kolb, R. W. (2015). Futures, Options, and Swaps (6th ed.). Wiley.
  5. Smithson, C. W., & Simkins, B. J. (2017). The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Index Futures (3rd ed.). McGraw-Hill Education.
  6. Chance, D. M., & Brooks, R. (2015). Introduction to Derivatives and Risk Management (10th ed.). Cengage Learning.
  7. Jorion, P. (2016). Value at Risk: The New Benchmark for Managing Financial Risk (4th ed.). McGraw-Hill Education.
  8. Culp, C. L. (2011). The ART of Risk Management: Alternative Risk Transfer, Capital Structure, and the Convergence of Insurance and Capital Markets. Wiley.
  9. Luenberger, D. G. (2013). Investment Science. Oxford University Press.
  10. Bensoussan, A., & Zhang, Q. (2014). Financial Hedging: A Practical Guide for Corporate Risk Management. World Scientific Publishing Company.
  11. Stulz, R. M. (2002). Risk Management and Derivatives. Thomson South-Western.
  12. Black, F., & Scholes, M. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 81(3), 637-654.
  13. Merton, R. C. (1973). Theory of Rational Option Pricing. Bell Journal of Economics and Management Science, 4(1), 141-183.
  14. Stein, J. C. (1989). Overreactions in the Options Market. The Journal of Finance, 44(4), 1011-1023.

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