We consider the problem of dynamically hedging the profits of a corporation when these profits are correlated with returns in the financial markets. In particular, we consider the general problem of simultaneously optimizing over both the operating policy and the hedging strategy of the corporation. We discuss how different informational assumptions give rise to different types of hedging and s...

a r t i c l e i n f o In this paper, we explore the impact of investor time-horizon on an optimal downside hedged energy portfolio. The optimal heating oil hedge ratio is first calculated for a variety of downside risk objective functions at different time-horizons using the wavelet transform. Next, associated hedging effectiveness is contrasted for a range of risk metrics, with all metrics sho...

The discourse of the discussion in research articles is regarded to be of considerable significance—as in this section the findings are interpreted in light of previous research and the authors’ argumentations are put forward as a major contribution (see Hyland, 1999). For this reason, the content and structure of the discussion section have been explored in several studies; however, little att...

Standard operating policy and hedging policies are commonly used for reservoir operation for municipal or irrigation water supply. Application of these policies to hydropower reservoir operation is complex. In this paper, new standard operating policies and standard hedging policy are proposed for hydropower reservoir operation. The newly proposed policies were applied to the operation of Indir...

This paper characterizes optimal currency hedging in several models of downside risk. We consider, in turn, three models of hedging: (i) a firm that chooses its hedging policy in the presence of bankruptcy costs; (ii) an all equity firm that faces a convex tax schedule; and (iii) a firm whose manager is subject to loss aversion. In all these models, and contrary to conventional wisdom, we show ...

Macrohedging is a hedging technique commonly used in practice. It allows one to find a hedging policy that offsets several underlying risk factors of a portfolio of assets as a whole. Here, we develop a macrohedging methodology in a general semimartingale market. We calculate the optimal macrohedge that achieves minimum risk, in a quadratic-variation sense, given a set of possible hedging instr...

This paper formulates a model of utility for a continuous time framework that captures the decision-maker’s concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are presented. First, we derive arbitrage-free pricing rules based on hedging arguments. Ambiguous volatility implies market incompleteness that rules out perfect...

Nongenetic variation in phenotypes, or bet-hedging, has been observed as a driver of drug resistance in both bacterial infections and cancers. Here, we study how bet-hedging emerges in genotype-phenotype (GP) mapping through a simple interaction model: a molecular switch. We use simple chemical reaction networks to implement stochastic switches that map gene products to phenotypes, and investig...

The paper introduces and studies hedging for game (Israeli) style extension of swing options considered as multiple exercise derivatives. Assuming that the underlying security can be traded without restrictions we derive a formula for valuation of multiple exercise options via classical hedging arguments. Introducing the notion of the shortfall risk for such options we study also partial hedgin...