In this paper we investigate the optimal hedging strategy for a firm using option contracts, where both the role of production (quantity) and basis (proxy) risk are considered. Contrary to the existing literature, we find that the exercise price which minimizes the shortfall of the hedged...

We investigate the optimal hedging strategy for a firm using options, where the role of production and basis risk are considered. Contrary to the existing literature, we find that the exercise price which minimizes the shortfall of the hedged portfolio is primarily affected by the amount of cash...

In this paper we develop a theoretical model in which a firm hedges a spot position using options in presence of both quantity (production) and basis risk. Our optimal hedge ratio is fairly general, in that the dependence structure is modelled through a copula function representing the quantiles...

We propose a maximum-expected utility hedging model with futures where cash and futures returns follow a bivariate skew-normal distribution, such to consider the effect of skewness on the optimal futures demand. Relative to the benchmark of bivariate normality, skewness has a material impact...

We propose a maximum-expected utility hedging model with futures where cash and futures returns follow a bivariate skew-normal distribution, such to consider the effect of skewness on the optimal futures demand. Relative to the benchmark of bivariate normality, skewness has a material impact...