Hedging Strategies Quotes

Briefly speaking, our conclusion is that stochastic volatility does not make a huge difference as far as the pricing is concerned if you get the average volatility right. It makes a big difference as far as hedging is concerned.

With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.

In an ideal world, one populated by vegetarians and Esperanto speakers, derivatives would be used for one thing only: reducing levels of risk. The list of individual traders who have lost more than a billion dollars at a time betting on derivatives is not short.

Shorts wager on price declines by selling shares that they have borrowed in the hope of buying them back at far lower prices.

My principal contribution to the Black-Scholes option-pricing theory was to show that the dynamic trading strategy prescribed by Black and Scholes to offset the risk exposure of an option would provide a perfect hedge in the limit of continuous trading.

"You need hedges.""Hedges," I said, bemused. "Yes, Edgar." He looked surprised and a little disappointed, as if I had failed to understand a very simple concept. "Hedges against the night."

I don't really like hedging. To me, if something needs to be hedged, you shouldn't have a position in it.

The options and futures traded on exchanges are derivatives contracts.

No matter how skillful the trading scheme, over the long haul, abnormal returns are sustained only through abnormal exposure to risk.

Every regulatory speech on derivatives takes a bow to their hedging 'benefits.' Less publicly, regulators pay their respects to derivative profits, a blessed relief from the banks' troubled loans to less-developed countries, highly leveraged companies, and real estate swingers.

To say accounting for derivatives is Americais a sewer is an insult to sewage.

With interest rates rising, gold doesn't pay an interest rate, but every other currency - it becomes not only less important to hold gold as an alternative, but more expensive to hold it as an insurance policy and so that will be a burden on the price of gold.

The credit derivative market would never have evolved but for the preexistence of the derivative markets because so much of the technology was borrowed.

I believe that the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically -- I should say, fully -- hedged.

The single greatest line I ever wrote as an analyst was after Lomas said they were hedged: 'The Lomas Financial Corporation is a perfectly hedged financial institution: it loses money in every conceivable interest rate environment.' I enjoyed writing that sentence more than any sentence I ever wrote.

I think that it would be a mistake for any institution to think that their stake in a default or in a voluntary accord is determined by the amount of their exposure, hedged or unhedged.

I think margins will be destroyed for a bunch of people. If that's true, then it will be good to have alternatives to hedge against that eventuality.

We [at Soros Fund Management] use options and more exotic derivatives sparingly. We try to catch new trends early and in later stages we try to catch trend reversals. Therefore, we tend to stabilize rather than destabilize the market. We are not doing this as a public service. It is our style of making money.

They lose least who have least to lose.

I'm not much into speculation.

In the interest rate area, traders have for a long time used a version of what is known as Black's model for European bond options; another version of the same model for caps and floors; and yet another version of the same model for European swap options.

There is very little difference between speculation and investment. The only difference is basically that investments are successful speculations because if you successfully anticipate the future you make a speculative profit.

We concluded that you cannot rely on delta hedging alone. It sounds simplistic to say that now, but back then, this was the sort of thing people were only just beginning to realize.

A wise person does not undertake any business with the risk of losing the capital money in search of making a profit.

Common hedging techniques include shorting stocks, buying put options, writing call options, and various types of leverage and paired transactions. While I do reserve the right to use these tools if and when appropriate, my firm opinion is that the best hedge is buying an appropriately safe and cheap stock.