Hedging Price Risk with Options and Futures for the Competitive Firm with Production Flexibility
AbstractWhen some input decisions can be made after price is realized, separation between production and hedging decisions still holds only under limited circumstances. Under the assumption of a restricted profit function that is quadratic in price, the optimal futures hedge of a risk-averse firm equals expected output and a short straddle position is desirable assuming that futures and options prices are unbiased. In this case, the use of options not only raises expected utility by reducing income risk but also affects the firm's input decisions in general. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 33 (1992)
Issue (Month): 3 (August)
Contact details of provider:
Postal: 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297
Phone: (215) 898-8487
Fax: (215) 573-2057
Web page: http://www.econ.upenn.edu/ier
More information through EDIRC
Other versions of this item:
- Moschini, GianCarlo & Lapan, Harvey E., 1992. "Hedging Price Risk with Options and Futures for the Competitive Firm with Production Flexibility," Staff General Research Papers 10043, Iowa State University, Department of Economics.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Wong, Kit Pong, 2006. "The effects of abandonment options on operating leverage and forward hedging," International Review of Economics & Finance, Elsevier, Elsevier, vol. 15(1), pages 72-86.
- Georges Dionne & Marc Santugini, 2014. "Production Flexibility and Hedging," Cahiers de recherche, CIRPEE 1417, CIRPEE.
- Lien, Donald & Wong, Kit Pong, 2004. "Optimal bidding and hedging in international markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(5), pages 785-798, September.
- Hennessy, David A., 1998.
"Risk Market Innovations and Choice,"
International Review of Economics & Finance, Elsevier,
Elsevier, vol. 7(3), pages 331-341.
- Adam, Tim Rene, 2002. "Risk management and the credit risk premium," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 243-269, March.
- Lapan, Harvey & Moschini, Giancarlo, 1996.
"Optimal price policy and the futures markets,"
Elsevier, vol. 53(2), pages 175-182, November.
- Axel F. A. Adam-MÃ¼ller & Kit Pong Wong, 2002. "Restricted Export Flexibility and Risk Management with Options and Futures," CoFE Discussion Paper, Center of Finance and Econometrics, University of Konstanz 02-07, Center of Finance and Econometrics, University of Konstanz.
- Ivan Stoykov & Paraskeva Dimitrova, 2003. "Modelling Firm Activity," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 3-24.
- Frank Lehrbass, 1994. "Optimal hedging with currency forwards, calls, and calls on forwards for the competitive exporting firm facing exchange rate uncertainty," Journal of Economics, Springer, Springer, vol. 59(1), pages 51-70, February.
- Adam, Tim, 2009. "Capital expenditures, financial constraints, and the use of options," Journal of Financial Economics, Elsevier, Elsevier, vol. 92(2), pages 238-251, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or ().
If references are entirely missing, you can add them using this form.