Aproxy or substitute HEDGE that is used when an exact replicating hedge is not available, generally by identifying a contract (e.g., a DERIVATIVE) that has a high degree of CORRELATION with the underlying RISK exposure requiring protection. Although a highly correlated crossasset hedge introduces elements of BASIS RISK, it reduces or eliminates firstorder MARKET RISKS, including DIRECTIONAL RISK or VOLATILITY RISK. Also known as CROSS HEDGE.
Black’s Law Online Dictionary
