Adam-Müller, Axel F.A.; Nolte, Ingmar - In: Journal of Banking & Finance 35 (2011) 11, pp. 2956-2964
Cross hedging price risk in an incomplete financial market creates basis risk. We propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way. Under this specification, positive prudence is a necessary and sufficient condition for underhedging in...