Currency hedging policy for pension funds

Pension funds are important institutional investors on international equity markets. The resulting foreign currency risk contributes to portfolio tail risk. To comply with the benefit pay-out obligation, pension funds need to do currency risk management to reduce this risk. The thesis analyzes how various currency hedging instruments behave and interact in the portfolio tail under different settings. We further explore the overhedging problem and come up with specific recommendations to the currency hedging policy of pension funds.