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Dirty Hedge Instrument


A derivative instrument which cannot be perfectly hedged using available exchange-traded instruments. In other words, the risks associated with such an instrument cannot be fully mitigated with tradable instruments

This could also refer to an instrument whose risk exposure varies over time due to changes in a variable other than the usual underlying variable. For example, in the context of commodity derivatives, crude oil derivatives can be used to hedge natural gas liquids (NGL) exposure.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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