RT Journal Article
SR Electronic
T1 Applications of FX Derivatives in Active Currency Risk Management
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 168
OP 191
DO 10.3905/jod.2022.1.157
VO 29
IS 4
A1 Frank J. Fabozzi
A1 Suprita Vohra
YR 2022
UL https://pm-research.com/content/29/4/168.abstract
AB Risk managers exhibit heterogeneous behavior as well as shortfall aversion, money illusion, and regret risk when managing portfolio risks. Foreign exchange options provide a flexible risk/return profile that is more likely to achieve such specific investment as well as behavioral objectives. We showcase five practical applications for international currency managers in selecting the appropriate hedging and active strategies for portfolio risk management. These solutions address a wide range of behavioral needs such as regret risk, shortfall aversion, positive skewness, and the increasing need for non-monetary satisfaction in the form of well-being utility.