This paper examines a simple basis risk model based on correlated geometric Brownian motions. We apply quadratic … criteria to minimize basis risk and hedge in an optimal manner. Initially, we derive the Föllmer–Schweizer decomposition for a … European claim. This allows pricing and hedging under the minimal martingale measure, corresponding to the local risk …

implement risk management in the real world …

if the risk aversion is beyond a certain level. …

We develop a dynamic theory of capital structure, liquidity and risk management, and payout policies for a financially … firm may be either endogenously risk-averse or risk-loving depending on the degree of market incompleteness and its current … leverage. When it is risk-averse, the firm optimally manages its risk by fully hedges its hedgeable risk so as to minimize the …