How Firms Can Hedge Against Market Risk

• Authors: Krzysztof Echaust
• 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.

Keywords

EN

hedging; Black-Scholes model; derivatives; options; forward; utility function; effectiveness of hedging strategy

• Publisher: Sciendo
• Journal: Studies in Logic, Grammar and Rhetoric
• Year: 2014
• Volume: 37
• Issue: 1
• Pages: 39-49

Dates

online

2014-08-08

Contributors

author

Krzysztof Echaust

• Department of Operations Research, Poznań University of Economics, Poland

References

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Identifiers

DOI

10.2478/slgr-2014-0016