The second step in the design of a hedging strategy is to find out how to obtain the targeted risk profile. This means that you have to determine the type and the respective amounts of hedging instruments that can be used. However, the type of risk profiles that were shown on the previous pages (Probability Densities vs. Yield) are difficult to obtain:
One needs an accurate model for the probability distributions for the values of all the parameters that affect the performance of the actual portfolio (e.g. interest rates, exchange rates, values of all the assets in the portfolio, volatilities, correlation coefficients (beta), etc.).
This is a practically impossible task and the numerical solution of such a problem is not easy either.