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On the exact minimum variance hedge of an un- certain quantity with flexibility

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Author Info

  • Sévi, B.

Abstract

The purpose of this paper is to investigate the impact of production cost variability upon hedging decision when the firm is a risk minimizer agent facing both price and quantity uncertainties. We show, under a perfect flexibility assumption, that considering cost variability leads to a lower [higher] optimal hedge ratio assuming a positive [negative] relation between prices and quantities.

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File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-04-12-53.pdf
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Bibliographic Info

Paper provided by CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1 in its series Cahiers du CREDEN (CREDEN Working Papers) with number 04.12.53.

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Length: 14 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mop:credwp:04.12.53

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Postal: CREDEN, Faculté d'Economie, Avenue Raymond Dugrand, CS 79606, 34960 MONTPELLIER Cedex 2, France
Phone: 33 (0)4 67 15 83 60
Fax: 33 (0)4 67 15 84 04
Web page: http://www.creden.univ-montp1.fr
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Related research

Keywords: MINIMUM VARIANCE HEDGE; UNCERTAIN DEMAND; PERFECT FLEXIBILITY; COST FUNCTION.;

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