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2014 | 37 | 1 | 39-49
Article title

How Firms Can Hedge Against Market Risk

Title variants
Languages of publication
EN
Abstracts
EN
The article presents a problem of proper hedging strategy in expected utility model when forward contracts and options strategies are available. We consider a case of hedging when an investor formulates his own expectation on future price of underlying asset. In this paper we propose the way to measure effectiveness of hedging strategy, based on optimal forward hedge ratio. All results are derived assuming a constant absolute risk aversion utility function and a Black-Scholes framework.
Publisher
Year
Volume
37
Issue
1
Pages
39-49
Physical description
Dates
online
2014-08-08
Contributors
References
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  • Holthausen, D.M. (1979). Hedging and the competitive firm underprice uncertainty. American Economic Review, 69, 989–995.
  • Hull, J.C. (1997). Option, futures and Other Derivatives, London: Prentice Hall International.
  • Karkowski, P. (2009). Toksyczne opcje. Od zaufania do bankructwa. Warsaw: Green-Capital.pl.
  • Lapan, C. H., Moschini, G., Hanson, S. (1991). Production, hedging and speculative decisions with options and futures markets. American Journal of Agricultural Economics, 73, 66–74.[Crossref]
  • Moschini, G., Lapan, H. (1995). The hedging role of option and futures under joint price, basic and production risk. International Economic Review, 36, 1025–1049.
  • Neumann, J. von, Morgenstern, O. (1944). Theory of Games and Economic Behavior, Princeton, NJ, Princeton University Press.
  • Pratt, J. W. (1964). Risk aversion in the small and in the large. Econometrica 32, January-April, 122–136.[WoS]
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.doi-10_2478_slgr-2014-0016
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