Underhedging

Underhedging means hedging an amount less than the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 50% (of the related risk exposure).

The effect of underhedging in this way is to reduce the variability of the net hedged exposure - for example by 50% in this case - but without fixing the whole of the related risk exposure.

See also

• Fixing
• Hedging
• Overhedging