How Firms Can Hedge Against Market Risk
Abstract
The article presents a problem of proper hedging strategy in expected utility model when forward contracts and options strategies are available. We consider a case of hedging when an investor formulates his own expectation on future price of underlying asset. In this paper we propose the way to measure effectiveness of hedging strategy, based on optimal forward hedge ratio. All results are derived assuming a constant absolute risk aversion utility function and a Black-Scholes framework.
Language: English
Page range: 39 - 49
Published on: Aug 8, 2014
Published by: University of Białystok
In partnership with: Paradigm Publishing Services
Publication frequency: 4 issues per year
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© 2014 Krzysztof Echaust, published by University of Białystok
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.