When Hedges Fail
Here's a gentle reminder for CFOs and risk officers at major international banks: if you hedge your position but you don't hedge it 100%, then you haven't fully hedged your position.
Last month, it was UBS, which made a decision based on "statistical analyses of historical price movements" that if it hedged its super-senior bonds against a price fall of somewhere between 2% and 4%, then those bonds were fully hedged. Now, it's Lehman Brothers:
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