Journal article
A Stochastic Dominance Approach to Evaluating Foreign Exchange Hedging Strategies
Financial management, Vol.21(3), pp.104-112
10/01/1992
DOI: 10.2307/3666023
Abstract
We offer a new approach to evaluating foreign exchange hedging strategies. The approach is practical since it is couched in terms of business variables such as profits, rates of return, and revenues. It is also consistent with utility-maximizing behavior since it is based on standard stochastic dominance rules. By taking account of all points of the hedging strategies' outcome distributions, the approach avoids the problems associated with popular selection procedures such as the mean-variance criterion. These problems can occur, for example, when the hedging outcome distributions are nonnormal. A stylized example for hedging transaction exposure is presented to demonstrate how the stochastic dominance evaluation methodology is easily implemented, that it is theoretically sound, and not restrictive in terms of its underlying assumptions.
Details
- Title: Subtitle
- A Stochastic Dominance Approach to Evaluating Foreign Exchange Hedging Strategies
- Creators
- William C. HunterStephen G. Timme
- Resource Type
- Journal article
- Publication Details
- Financial management, Vol.21(3), pp.104-112
- DOI
- 10.2307/3666023
- ISSN
- 0046-3892
- eISSN
- 1755-053X
- Publisher
- Financial Management Association
- Number of pages
- 9
- Language
- English
- Date published
- 10/01/1992
- Academic Unit
- Finance
- Record Identifier
- 9984963237002771
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