RT Journal Article
SR Electronic
T1 Earnings Impact of Derivatives Under Hedge Accounting
JF Special Issues
FD Institutional Investor Journals
SP 62
OP 64
VO 2001
IS 1
A1 Andrew J Kalotay
A1 Leslie A. Abreo
YR 2001
UL https://pm-research.com/content/2001/1/62.abstract
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.