FX Hedge Optimization | Deaglo | Invest Overseas Effortlessly
markus-spiske-xekxE_VR0Ec-unsplash-min.j

FX Hedge Optimization 

Deciding between multiple option strategies (e.g. single option, collars, par forwards, condors etc.) is very difficult. Often, banks will provide a simplistic description with a graphic illustrating the payoff at different terminal spot values. However, the key issue - the likelihood of each outcome (and the resulting expected value) is not represented in any meaningful way.

We believe that understanding the distribution of outcomes is key to evaluating the true efficacy of a hedging strategy.

Strategy Evaluator

Graphical displays of the outcome distributions for each strategy make it easy to intuitively grasp the relative performance of multiple strategies and effectively communicate the findings to investors.

FX Market Simulations

Simulation types include geometric Brownian motion, stochastic volatility and jump-diffusion models.  The market models may include skew (client predilection of market trends), and kurtosis (ie fat tails), to model upcoming impactful events.

Our Monte Carlo simulation engine can simultaneously model multiple strategies including forwards, vanilla, exotic options and the likelihood of a margin call.

Hedging  Multiple Simultaneous Exposures

For entities with multiple currency exposures in their portfolio, it can be difficult to balance all of the factors and determine the optimal hedging strategy. Each exposure will have different volatility, the cost to hedge, and of course size. 

 

Our program uses constrained optimization to identify the efficiency frontier, which consists of total hedge cost/portfolio VaR pairs. The efficiency frontier represents the lowest portfolio VaR for a given total cost, or conversely, the lowest total cost for a given portfolio VaR.

Want To Learn More About FX Hedge Optimization?

Our Cross-border Content is designed to answer questions you may have about the world of cross-border transactions. If you have further questions that aren't covered by our articles, feel free to contact our team.

Learn More About Our Solutions

If you are interested in finding out more about our services or speaking to one of our team, please reach out to us on:

info@deaglo.com

Deaglo white logo.png
  • LinkedIn - White Circle

Deaglo Partners LLC’s Payment and Foreign Currency Exchange Services to customers based in the United States (USA) are provided by Associated Foreign Exchange, Inc "AFEX". Deaglo Partners LLC’s is partnered with AFEX Associated Foreign Exchange as its Programme Manager. Associated Foreign Exchange, Inc. (“AFEX”) is licensed and regulated as a Money Transmitter by the following Regulatory State Agencies. AFEX is also registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury (Document Control Number: 20113470000126)

Deaglo Partners LLC’s Payment and Foreign Currency Exchange Services to customers based in the European Economic Area (EEA) are provided by Ebury Partners UK Limited. Deaglo Partners LLC’s is partnered with Ebury Partners UK Limited as their Programme Manager. Ebury Partners UK Limited is authorized and regulated by the Financial Conduct Authority as an Electronic Money Institution. (Reference Number 900797). Ebury Partners UK Limited is authorized to provide its permitted services in the European Economic Area (EEA).