Optimal Hedge Ratios for Property and Liability Insurance Companies
The development of futures and options markets has given an impetus to the search for hedging strategies that would most effectively reduce the risk of business operations. This paper develops a firm specific hedging model for a property and liability insurance company and demonstrates the determination of hedge ratios for a sample of ten such firms. Most of the firms in the sample needed to take a long position in futures. In all but one case, the model prescribes ratios that are significantly different from the naive strategies of not hedging or of hedging all transactions.
Volume (Year): 15 (1992)
Issue (Month): 2 ()
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