Interest Rate Futures and Bank Hedging

Posted: 15 Mar 1999

See all articles by Udo Broll

Udo Broll

Dresden University of Technology - Faculty of Economics and Business Management

Timothy W. Guinnane

Yale University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

This note examines a situation in which hedging may actually increase a bank's exposure to risk. Especially in the case of financial institutions, there exists only a limited number of delivery dates for each futures contract and the delivery dates may not coincide with it the planning horizon of the firm. Therefore a cross-hedge often becomes necessary in financial institutions. However, a cross-hedge may increase the level of noise, and with it the banking firm's income risk.

JEL Classification: G21

Suggested Citation

Broll, Udo and Guinnane, Timothy W., Interest Rate Futures and Bank Hedging. OR Spektrum, Vol. 21, Issue 1-2, 1999, Available at SSRN: https://ssrn.com/abstract=150689

Udo Broll (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Timothy W. Guinnane

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
(203) 432-3616 (Phone)
(203) 432-3898 (Fax)

HOME PAGE: http://sites.google.com/site/timothywguinnanec/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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