Applied risk management series: Optimising commodity hedging programmes
The design and optimisation of a successful commodity hedging programme requires solid backtesting that meets the needs of different business functions. Using a recent case study, Carlos Blanco and Tamir Druz show how various tests can complement and reinforce one another
How does a firm design an effective commodity hedging programme? The key to answering this question lies in one’s definition of the term ‘effective’, which can have a very different meaning even to people within the same organisation, depending on their personal views and functional perspectives.
For example, back-office functions rely on prevailing hedge accounting standards to make this determination. In contrast, middle-office personnel in risk management will tend to focus on the programme’s
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