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In essence - yes. Firms will hedge and hedge and hedge (and hedge) internally and between each other. These are essentially derivations. Also, a complex instr
by jwilliams 18y ago
In essence - yes.
Firms will hedge and hedge and hedge (and hedge) internally and between each other. These are essentially derivations.
Also, a complex instrument might require multiple hedges. These hedge positions might be confounded in themselves - so you might put together a strategy between your hedges.
It's becomes a bit of a financial Jenga - which is why one or two key failures is getting people very nervous.
- tstegart 18y agoI'm beginning to suspect that many problems are a result of people not being able to keep track of what does what for who's benefit. Seriously, it sounds like a bankruptcy seminar I went to. Banks trying to foreclose were getting upset when judges started to tell them to produce the title to the loan. It turns out they had repacked and sold them and never actually delivered the titles. The excuse was "its on someone's desk somewhere." But the laws in some states require you to bring it to court to prove you own the loan. And they couldn't, even though everyone knew who owned the loan, nobody had the piece of paper. Once the Jenga pile collapses, I highly doubt people will be able to figure out who owes what to who, even though they claim to have hedges against this, that and the other.