From crystal balls to digital options
REAL-LIFE PROBLEMS, INNOVATIVE SOLUTIONS
Unfortunately the FX markets are not readily cooperative, and like a year-end bonus – the mystery remains. Enter the fixed downside risk scenario. Below are three funding possibilities that corporate hedgers can use to reduce vanilla option purchases. The ideas may or may not qualify for hedge accounting depending on how they are structured, and all are benchmarked against the purchase of a vanilla option strip.
Background
The classic premium neutral hedging structure encompasses the purchase of
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