An efficient frontier for FX hedging

Fabian Scheler

August 30, 2021

Many investors either neglect FX risk or tackle it in an overly simplistic way. This publication therefore elaborates on different heuristics and introduces a mean-variance based approach.

5 Minute Read

How to deal with foreign exchange risk can be a surprisingly controversial topic. Some investors rigorously put hedges in place for almost every foreign currency denominated asset.

Others knowingly or unknowingly take huge implicit bets on future exchange rates. We think, in most cases neither of these extreme approaches is optimal. This paper therefore introduces several heuristic ways of approaching foreign exchange rate risk management alongside an introduction to the interactive optimizer we have made available on the quantamental platform.

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