A note on hedging cost and basis risks
β Scribed by Moawia Alghalith
- Book ID
- 116423661
- Publisher
- Elsevier Science
- Year
- 2006
- Tongue
- English
- Weight
- 83 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0264-9993
No coin nor oath required. For personal study only.
π SIMILAR VOLUMES
## Abstract Using a general framework and a multipleβinput technology, we thoroughly investigate the hedging and production decisions under cost uncertainty. In doing so, we show the impact of the cost risk on the optimal output, hedge and hedge ratio. Copyright Β© 2006 John Wiley & Sons, Ltd.
In a recent paper, Kuo and Chen (1995) propose a simplification of the Howard and D'Antonio (1984, 1987) model of hedging effectiveness. This note extends Kuo-Chen's suggested simplification to derive the optimal hedge ratio and second order conditions (SOCs) of the Howard-D'Antonio model. These SOC
## Abstract This paper analyzes the hedging decisions for firms facing price and basis risk. Two conditions assumed in most models on optimal hedging are relaxed. Hence, (i) the spot price is not necessarily linear in both the settlement price and the basis risk and (ii) futures contracts and optio