Wong, Kit Pong - In: International Review of Economics & Finance 24 (2012) C, pp. 177-184
and with state-dependent background risk. We show that the firm's optimal production decision is independent of the …-hedge that completely eliminates the output price risk if either the background risk is state-independent, or the firm's utility … magnitude of the background risk vary in a monotonic manner with changes in the realized state. When the prudent firm has access …