Optimal hedge ratio and elasticity of risk aversion
AbstractWe apply the mean-standard deviation paradigm to examine a widely used model of the hedging literature. As the hedging model satisfies a scale and location condition the mean-standard deviation technique provides more intuition for the revision of the firm's optimum risk taking when price volatility changes. By introducing risk aversion elasticity we describe the interaction of price risk and optimum hedge. We show that with unit risk aversion elasticity optimum hedge ratio is invariant to changes in price volatilities.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 6 (2004)
Issue (Month): 5 ()
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elasticity of risk aversion;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- D2 - Microeconomics - - Production and Organizations
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