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.