Optimal Hedging Calculation Excel Model

Description
The Optimal Hedging Strategy model automatically calculates the optimal percentage of exposure to hedge and the resulting net economic savings. The template utilizes a risk aversion factor to determine the percentage of exposure to not to hedge, potentially saving considerable hedging costs.

The result gives the optimal proportion of exposure to hedge given all of the parameters specified. The net savings represent a pre-hedge capital reserve released (or redeployed) determined by the freed-up capital by the reduced volatility and size of reserves held. The optimal hedging strategy is derived via economic value added (EVA) after deducting the hedging cost and benchmarking the net savings against the risk exposure.