Financial risk management solution costs - Standardisation and time

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Four critical factors impact the price of risk management solutions.

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.