PT  - JOURNAL ARTICLE
AU  - Andrew J Kalotay
AU  - Leslie A. Abreo
TI  - Earnings Impact of Derivatives Under Hedge Accounting
DP  - 2001 Sep 21
TA  - Special Issues
PG  - 62--64
VI  - 2001
IP  - 1
4099  - https://pm-research.com/content/2001/1/62.short
4100  - https://pm-research.com/content/2001/1/62.full
AB  - Ideally, a hedge should be deemed highly effective only if it actually achieves the intended reduction of business risk. A corporation may be tempted to use a lenient correlation test so that a derivative will qualify easily for hedge accounting treatment. However, this may result in winning the battle but losing the war because the hedge may fail to achieve the desired reduction in earnings volatility. This article demonstrates how to project the earnings impact of a highly effective hedge using accepted statistical risk management methods.