OPTI+

OPTI+ is an optimization tool for hedging the risk of a multi-currency position with the assumption that the user's view of the exchange rates is different from the forward rates implied by the market. (Hence, the user expects some outcome - positive or negative - for open currency positions which will be realized if the user's view is correct).

Setting a combination of the expected return and volatility as its target function, OPTI+ defines the optimal hedging portfolio which will maximize the return and minimize the volatility of position that is left open after the hedging.

The optimization is constrained by a constant average hedging level i.e. a constant percentage of the whole currency position (measured in terms of the home currency) that is being hedged. Also, the user can set arbitrary boundaries for the hedging of each individual currency position. The user can regulate his risk aversion by a coefficient which determines how many units of return are required for each excessive unit of risk (i.e. volatility). OPTI+ also calculates efficient frontiers as a function of this risk aversion coefficient.

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