Production and futures hedging with state-dependent background risk

Optimal Hedging with Options and Futures against Price Risk and Background Risk

On the condition that both futures and options exist in the markets for hedging, this paper examines the optimal hedging strategy under price risk and background risk. Compared with the previous research, which has studied options hedging against basis risk and production risk being extended to options and futures hedging against price risk and background risk, we proposed a model and have take...

Area Yield Futures and Futures Options: Risk Management and Hedging

Imagine there exist markets for yield futures contracts as well as ordinary price futures contracts. • Intuitively one would think that a combined use of yield futures contracts and price futures contracts ought to provide a reasonable strategy for insuring revenue. • In the paper this idea is made precise. It is shown that revenue can be secured in by a combined replication of these two contra...

Commodity Futures Hedging, Risk Aversion and the Hedging Horizon

This paper examines the impact of management preferences on optimal futures hedging strategy and associated performance. Applying an expected utility hedging objective, the optimal futures hedge ratio is determined for a range of preferences on risk aversion, hedging horizon and expected returns. Empirical results reveal substantial hedge ratio variation across distinct management preferences a...

Hedging Downside Risk: Futures versus Options

Determinants of Hedging and Risk Premia in Commodity Futures Markets

This paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns, and with the reve? nues of producers. Owing to supply shocks that stochastically redistribute real wealth (surplus) between producers and consumers, and to limited participation in the futures market, the total risk premium in the model is...