What is CROSS-ASSET HEDGE?

Aproxy or substitute HEDGE that is used when an exact replicating hedge is not available, generally by identifying a contract (e.g., a DERIVATIVE) that has a high degree of CORRELATION with the underlying RISK exposure requiring protection. Although a highly correlated crossasset hedge introduces elements of BASIS RISK, it reduces or eliminates firstorder MARKET RISKS, including DIRECTIONAL RISK or VOLATILITY RISK. Also known as CROSS HEDGE.

More On This Topic



Link to This Definition
Did you find this definition of CROSS-ASSET HEDGE helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary