How firms should hedge: An extension
This note studies a firm's optimal hedging strategy with tailor‐made exotic derivatives under both price risk and quantity risk. It extends the analysis of Brown G. W. and Toft K.‐B. (2002) by relaxing the assumption of a bivariate normal distribution. The optimal payoff function of a derivative contract is characterized in terms of the expectation and variance of the quantity, conditional on the price. This main result is illustrated by different examples, stressing the importance of the dependence structure between price risk and quantity risk for the choice of appropriate hedging instruments. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:834–845, 2010
Year of publication: |
2010
|
---|---|
Authors: | Korn, Olaf |
Published in: |
Journal of Futures Markets. - John Wiley & Sons, Ltd.. - Vol. 30.2010, 9, p. 834-845
|
Publisher: |
John Wiley & Sons, Ltd. |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Accounting and equity-based compensation : on the influence and effectiveness of IFRS 2
Merz, Alexander, (2014)
-
On the role of financial derivatives for the genesis and analysis of volatility in commodity markets
Schlüßler, Kristina, (2016)
-
Market depth and order size: an analysis of permanent price effects of DAX futures' trades
Kempf, Alexander, (1998)
- More ...