Relaxing Standard Hedging Assumptions in the Presence of Downside Risk
The purpose of this study is to analyze how the introduction of a downside risk measure and less restrictive assumptions can change the optimal hedge ratio in the standard hedging problem. Based on a dataset of futures and cash prices for soybeans in the U.S., the empirical findings indicate that optimal hedge ratios change dramatically when a one-sided risk measure is adopted and standard assumptions are relaxed. Further, the results suggest that in a downside risk framework with realistic hedging assumptions there is little or no incentive for farmers to hedge.
|Date of creation:||2005|
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- Lence, Sergio H., 1996.
"Relaxing the Assumptions of Minimum-Variance Hedging,"
Staff General Research Papers
5156, Iowa State University, Department of Economics.
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