Dynamic Currency Hedging

Risk mitigation strategy that adjusts the hedge ratio on individual currency exposures, using currency forwards, to protect investors from the adverse effects of currency movements

 

Investment Objective

Seeks to vary the hedge ratio on individual currency exposures in anticipation of currency moves in order to protect the value of foreign currency exposure in periods when the base currency is rising and to benefit from the increase in value of foreign currency exposure when the base currency is falling.

 

Key Features

Option Replication

A dynamic adjustment of currency hedge ratios is typically implemented through an “option replication” process

The hedge ratio is adjusted; rising (falling) with an appreciation (depreciation) of the base currency, via the use of forward currency contracts which replicate the behaviour of an option

Millennium Enhancements

Signals from the price difference in the implied volatility of call versus put options (the skew) are used to scale the hedge ratio. Input from several volatility measures (implied and realised) is used to enhance the scaling of the hedge ratio.

Assessing the hedging regime:

Millennium Global  systematically extracts the implied currency views from our USD 11 billion of fundamental discretionary active currency programmes to derive the hedging regime

 

Benefits

Risk Mitigation: Seeks to reduce volatility inherent in foreign exchange exposure
Drawdown Minimisation: The model seeks to minimise losses and negative cash flows from currency hedging
Seeks Improved Return per unit of risk taken
Customisation: Can be applied to any benchmark, with 0% to 100% hedge ratio

Solutions


Risk Mitigation


Manage Exisiting Risk


Absolute Return


Dynamic Currency Hedging

Who we are

Founded in 1994, we are an independent institutional asset manager based in London specialising in currency investment management for institutional clients globally.
Contact us to discuss your requirements.

What we do

We provide currency management solutions including risk mitigation strategies, active management of existing risk, absolute return products and advisory services.
Learn more.