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
+43 | Breakdown of Commodity Trading Houses | 9 | 4h | |
+22 | Best macro desks | 7 | 4d | |
+21 | Delta One Trading | 10 | 1d | |
+16 | How Quantitative is Commodity Trading | 8 | 1d | |
+14 | Working in Switzerland for Non EU | 2 | 57m | |
+13 | Networking with other desks during summer internship | 1 | 23h | |
+12 | 35% Pay Cut - S&T Exit Opportunity? | 1 | 3d | |
+12 | Power Trader Progression | 1 | 2d | |
+12 | Breaking into Quant work as math PhD. What are my options? | 2 | 4d | |
+12 | RT Trading in UK Prospects and Career Path | 2 | 2h |
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:
Expedita aut non voluptas vel. Praesentium totam necessitatibus fugit reiciendis omnis. Nesciunt ut officiis et praesentium voluptatem autem.
Libero sed iusto eum sint. Recusandae quo natus in tenetur. Aut autem asperiores corrupti vel. Soluta error voluptatem at et minus architecto aut.
Qui laudantium magni pariatur est reiciendis atque. Inventore ut quidem molestiae non architecto. Praesentium et amet voluptates.
Quo ut maiores sed quam quia. Nulla est enim sed ab. Dolorem eius magni nam omnis ratione blanditiis. Quod fugiat optio ut ducimus ut sit sapiente.
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...