>A hedge is simply a swap of risk; by definition they "really do"
>what they say they do. I'm not sure what you're getting at here ...
As the article on hedging in the New Palgrave Dictionary of Finance shows in more detail than i have time to provide here, while it may be possible to hedge price, it's not yet possible to hedge volume, so that incomes may be no less volatile in a hedged world than an unhedged one.
>A hedge is fairly unique
>in the world of transactions: both sides appear to gain.
Liberty, equality, and Bentham indeed.
>Oh, that's just silly. The *vast* majority (95%+?) of derivatives
>traded are off-exchange -- just because the exchanges have found a
>few items that can be standardized doesn't mean it's not useful to
>do custom derivative contracts.
According to the BIS, there were about $12 trillion in exchange-traded futures and options outstanding at the end of 1997, and about $22 trillion in notional principal of interest and currency swaps. So 95% seems a stretch. But even currency and interest rate swaps aren't all that heterogenous - presumably most involve blue-chip credits (except the toxic waste stuff that's sold to rubes), involve a small set of currencies and a not-too-exotic basket of instruments. That's pretty different from this guy's proposal for an Arrow-Debreu wet dream market in everything.
Doug