Risk Program Design & Evaluation

A well thought out hedge program requires a structured set of decision rules including the primary goal to constrain market prices from pushing a portfolio’s cost outside of tolerable bounds.  Pace Global calls such decision rules “Hedging Decision Protocols”, or “HDPs”, and they form the core of a hedging and risk management implementation plan. Typically, we recommend four dimensions of HDPs:

• Programmatic Protocols accumulate positions systematically, prior to the onset of acute volatility. Programmatic hedges pre-empt overdependence on defensive hedges.
• Defensive Protocols respond to the need to defend tolerable boundaries during periods of rising forward-market prices. Defensive protocols are typically set up in tiers for appropriate protection, while inhibiting overreaction to short-lived market movements.
• Discretionary Protocols promote favorable outcomes through the constrained exercise of judgment via market-timing transactions. We have developed proprietary, quantitative indicators to provide unbiased insight to market opportunities.
• Contingency Protocols monitor the risk of out-of-market outcomes and provide a structured response to mitigate regulatory inquiries.

The hedge strategy and decision protocols can only be evaluated well in the context of valid and precisely formulated goals, where such goals are informed by a rigorous view of the exposure of the company’s cost or revenue structure to market volatility.  Our highly-refined program design and evaluation services provide clients with a well-informed, step-by-step development of a sound set of hedging decision protocols aligned to core company objectives and, importantly, compatible with prevailing market volatility.

For more information, please contact:
 Jim Diemer at 703.818.9100 or via email.