Through analyzing differences between four risk hedge methods to help companies choose a suitable strategy in different financial situation

Abstract

Hedging risk is an essential section of finance for all investors, especially in the times where uncertainty occurs every time. covid-19 has hit the global market heavily since 2020, promoting the importance of hedging risk significantly. This essay generally introduces 4 fundamental methods of hedging risk, including the Arbitrage strategy, alpha strategy, neutral strategy and event-driven strategy. It mainly focusses on their origins, the economics and finance theory of each format and the reality problems occurred in application. At the same time, the advantages and drawback of each methods have been discussed with full detail. General speaking , in different scenarios there might be different methods that are suitable. Alpha strategy is desirable in stable market and neutral strategy is the most secure one but requires lots of calculation. Event-driven strategy and arbitrary strategy hugely depends on the executive of managers.This essay is fairly helpful for the learner who just started to learn about hedging risks to generally study the fundamental risk hedging.