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An Alternative To Hedging For The Corporation: Managing A Portfolio Of Risks

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  • D. Sykes Wilford

Abstract

Financial Risk Management for most corporations has now become a topic of discussion, if not an issue for active implementation. The issues of “Should One Hedge” and “How Should One Hedge” are often segregated and have tended to be so in the literature. Articles dealing with the hedge decision often ignore the implementation issues and vice versa. This article explores the use of Mean Variance portfolio optimization techniques in hedging corporate risks. It links the various sets of literature together to argue that for some firms using modern portfolio management techniques to manage corporate risks can prove advantageous. The article concludes with an analysis of a synthetic European firm exhibiting many of the risks and other qualities apropos a firm deciding to utilize MEAN‐VARIANCE techniques to manage financial risks.

Suggested Citation

  • D. Sykes Wilford, 1993. "An Alternative To Hedging For The Corporation: Managing A Portfolio Of Risks," Review of Financial Economics, John Wiley & Sons, vol. 2(2), pages 1-18, March.
    • Handle: RePEc:wly:revfec:v:2:y:1993:i:2:p:1-18
    DOI: 10.1002/j.1873-5924.1993.tb00561.x
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    1. Judy C. Lewent & A. John Kearney, 1990. "Identifying, Measuring, And Hedging Currency Risk At Merck," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(4), pages 19-28, January.
    2. S. Waite Rawls & Charles W. Smithson, 1990. "Strategic Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(4), pages 6-18, January.
    3. Clifford W. Smith & Charles W. Smithson & D. Sykes Wilford, 1989. "Managing Financial Risk," Journal of Applied Corporate Finance, Morgan Stanley, vol. 1(4), pages 27-48, January.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Charles W. Smithson & Donald H. Chew, 1992. "The Uses Of Hybrid Debt In Managing Corporate Risk," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 79-89, January.
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