📚 node [[financial risk management solution costs standardisation and time]]

Financial risk management solution costs - Standardisation and time

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Four critical factors impact the price of risk management solutions.

The four factors are:

  1. Stardardisation
  2. Time
  3. Liquidity
  4. Market Volatitlity

For the second half see [[Liquidity and Volatility]]

Most commonly hedged prices are:

  • interest rates
  • currency rates
  • commodity rates

The the prices of the instruments for hedging them:

  • Options
  • Swaps
  • Futures
  • Forwards

Are dependent on theL

  • How standard the markets are
  • How long you need that instrument in place
  • How liquid those markets are
  • How volatile those markets are

Standardisation

How common the requirements for risk management are

Basis Risk

  • Product
  • Timing
  • Geography

Time

The time until risk management contracts expire. Cheaper the the closer to expiration.

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