Risk Hedging Quotes

Credit-default swaps remedied the problem of open-ended risk for me. If I bought a credit-default swap, my downside was defined and certain, and the upside was many multiples of it.

Diversifying sufficiently among uncorrelated risks can reduce portfolio risk toward zero. But financial engineers should know that's not true of a portfolio of correlated risks.

My principal contribution to the Black-Scholes option-pricing theory was to show that the dynamic trading strategy prescribed by Black and Scholes to offset the risk exposure of an option would provide a perfect hedge in the limit of continuous trading.

Every regulatory speech on derivatives takes a bow to their hedging 'benefits.' Less publicly, regulators pay their respects to derivative profits, a blessed relief from the banks' troubled loans to less-developed countries, highly leveraged companies, and real estate swingers.

The trouble is that the risks that are being hedged very well by new financial securities are financial risks. And it appears to me that the real things you want to hedge are real risks, for example, risks in innovation. The fact is that you'd like companies to be able to take bigger chances. Presumably one obstacle to successful R&D, particularly when the costs are large, are the risks involved.

I believe that the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically -- I should say, fully -- hedged.

I think margins will be destroyed for a bunch of people. If that's true, then it will be good to have alternatives to hedge against that eventuality.

I think the most important thing to understand about credit derivatives and their use at JPMorgan is they served a number of different purposes. First and foremost, they were a tool which initially was seen as being useful in managing the bank's own risk management challenges.