Abstract
PurposeThe purpose of this paper is to present a realistic hedging model.Design/methodology/approachThe paper uses a general utility function, general distributions, and a multiple‐input technology.FindingsThe study finds that the impact of one or both risks on the optimal output, hedge, or hedge ratio is determined by the market structure of one or both forward pieces.Originality/valueThis is the first paper that uses a general, complete, and realistic hedging model.
Reference10 articles.
1. Alghalith, M. (2003), Hedging Output Price and Cost Uncertainty, Discussion Paper No. 0305, University of St Andrews, St Andrews.
2. Alghalith, M. (2006a), “Hedging decisions with price and output uncertainty”, Annals of Finance, Vol. 2 No. 2, pp. 225‐7.
3. Alghalith, M. (2006b), “A note on hedging cost and basis risks”, Economic Modelling, Vol. 23 No. 3, pp. 534‐7.
4. Alghalith, M. (2007), “Input hedging: generalizations”, Journal of Risk Finance, Vol. 8 No. 3, pp. 309‐12.
5. Anderson, R. and Danthine, J. (1983), “Hedger diversity in futures markets”, Economic Journal, Vol. 93 No. 37, pp. 370‐89.