On the exact minimum variance hedge of an un- certain quantity with flexibility
AbstractThe 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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Bibliographic InfoPaper 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.
Length: 14 pages
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Université de Montpellier 1, Faculté des Sciences Economiques, CREDEN, Rue Raymond Dugrand - Espace Richter, 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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MINIMUM VARIANCE HEDGE; UNCERTAIN DEMAND; PERFECT FLEXIBILITY; COST FUNCTION.;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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