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Optimal Hedging under Intertemporally Dependent Preferences

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Author Info
 Briys, Eric
Crouhy, Michel
Schlesinger, Harris
Abstract

This paper examines optimal hedging behavior in a market where preferences for current consumption are partly determined by the consumer's past consumption history. The model considers an individual exposed to price risk, who allocates wealth between consumption and futures contracts over a (continuous-time) finite planning horizon. The speculative component of the hedge ratio is shown to be smaller and the consumption path smoother than in models where preferences are separable over time. Some comparative-static properties of the hedge ratio are also examined. Copyright 1990 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 4 (September)
Pages: 1315-24
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:4:p:1315-24

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  1. Gilroy, Bernard Michael & Broll, Udo, 2005. "Managing Credit Risk with Credit Derivatives," MPRA Paper 17678, University Library of Munich, Germany. [Downloadable!]
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