Hedging as a Method of Price Risk Management

Abstract

Derivative financial instruments have great importance in the fight against financial risks. The purpose of applying to derivative financial instruments is to extract profits from price fluctuations of the corresponding exchange asset, as well as to protect (hedge) against undesirable changes in market prices for the corresponding exchange asset. Risk hedging is based on the strategy of minimizing unwanted risks, so the result of the operation can also be a reduction in potential profit, since profit, as it is well known, is inversely related to risk. If earlier hedging was used exclusively for minimizing price risks, then at present the goal of hedging is not to remove risks, but to optimize them. In the article, the authors made conclusions about the existing value of hedging as a tool to reduce the risk associated with the adverse effect of market factors on the price of another instrument associated with it, or on the cash flows generated by it.