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Dynamic Optimal Hedge Ratio Design when Price and Production are stochastic with Jump

Author

Listed:
  • Nyassoke Titi Gaston Clément

    (Université de Douala)

  • Jules Sadefo-Kamdem

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

  • Louis Aimé Fono

    (Université de Douala)

Abstract

In this paper, we focus on the farmer's risk income, by using commodity futures, when price and output processes are correlated random represented by jump-diffusion models. We evaluate the expected utility of the farmer's wealth and we determine, at each instant of time, the optimal consumption rate and hedge position at given the time to harvest and state variables. We find a closed form optimal position of consumption and position rate in case of CARA utility investor. This result (see table 1.5) is a generalization of Ho (1984) result who consider the particular case where price and output are diffusion models.

Suggested Citation

  • Nyassoke Titi Gaston Clément & Jules Sadefo-Kamdem & Louis Aimé Fono, 2022. "Dynamic Optimal Hedge Ratio Design when Price and Production are stochastic with Jump," Post-Print hal-02417401, HAL.
    • Handle: RePEc:hal:journl:hal-02417401
    DOI: 10.1007/s10436-022-00410-1
    Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02417401
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    References listed on IDEAS

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    Keywords

    Jump-diffusion process; futures; stochastic dynamic programming; Lévy measure; risk management;
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