Easy question for essays

[drk]

Naive vs Minimum Variance Hedge
Sub components of Variance decomposition

 

[qqqqqq]

Wat

 

[DD87]

seriously WHAT?

 

[drk]

Naive hedge - only hedging currency risk of the principal amount and not change in principal
Minimum variance hedging - Hedging both
Sub components
Transaction component - hedging currency risk of principal
Economic component - heding currency risk of total portfolio return

 

[bpdulog]

drk Wrote:
——————————————————-
> Naive hedge - only hedging currency risk of the
> principal amount and not change in principal
>
> Minimum variance hedging - Hedging both
>
> Sub components
>
> Transaction component - hedging currency risk of
> principal
> Economic component - heding currency risk of total
> portfolio return
Fo shizzle

 

[stevenevans]

Agree with meaning of naive hedge above
Minimum variance hedge is the hedge required based on correlations of the stock returns and the currency returns = 1 + (Cov (stock returns, currency returns)/ squared standard deviation of currency returns)