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On the variation of hedging decisions in daily currency risk management

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Author Info
C.S. Bos ()
R.J. Mahieu ()
H.K. Van Dijk () (FEW-Econometrie en besliskunde)

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Abstract

Internationally operating firms naturally face the decision whether or not to hedge the currency risk implied by foreign investments. In a recent paper, Bos, Mahieu and van Dijk evaluate the returns from optimal and alternative currency hedging strategies, for a series of 7 models, using Bayesian inference and decision analysis. The models differ in the way time-varying means, variances or the unconditional error distributions are incorporated. In this extension, we compare the hedging decisions and financial returns and utilities as they result from the modelling assumptions and the attitudes towards risk.

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Publisher Info
Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number 206.

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Date of creation: 2000
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Handle: RePEc:dgr:eureir:2000206

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Related research
Keywords: Exchange rates Risk management Bayesian analysis

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Statistical Decision Theory; Operations Research
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. C.S. Bos & R.J. Mahieu & H.K. Van Dijk, 2000. "Daily exchange rate behaviour and hedging of currency risk," Econometric Institute Report 201, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
    Other versions:
  2. L. Bauwens & C.S. Bos & H.K. van Dijk, 1999. "Adaptive Polar Sampling with an application to a Bayes measure of Value-at-Risk," Econometric Institute Report 167, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
    Other versions:
  3. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," Journal of Business, University of Chicago Press, vol. 58(3), pages 259-78, July. [Downloadable!] (restricted)
  4. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
    Other versions:
  5. Koop, Gary & Dijk, Herman K. Van, 2000. "Testing for integration using evolving trend and seasonals models: A Bayesian approach," Journal of Econometrics, Elsevier, vol. 97(2), pages 261-291, August. [Downloadable!] (restricted)
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  6. Geweke, John, 1989. "Exact predictive densities for linear models with arch disturbances," Journal of Econometrics, Elsevier, vol. 40(1), pages 63-86, January. [Downloadable!] (restricted)
  7. Kim, Sangjoon & Shephard, Neil & Chib, Siddhartha, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 361-93, July. [Downloadable!] (restricted)
    Other versions:
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