Interest Rate Futures and Bank Hedging
Posted: 15 Mar 1999
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: 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
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