Various hedging instruments

Various hedging instruments

Insurance is not the only way of covering the risk. Various hedging instruments are now available for dealing with various risks. The origin of hedging lies in agriculture. Farmers are facing uncertainty about the price at the time of harvest. First, forward contracts and futures contracts later emerged to deal with this kind of uncertainty. Chicago emerged as a center of futures trading. Later, options and swaps out. Today we have other sophisticated derivatives like credit default swaps to insure against credit risk and weather derivatives to offset the impact of extreme temperatures. Along with various exchange traded instruments, over the counter (OTC) derivatives, also emerged.