In this paper we investigate the consequences of the choice of the model to partial hedging in incomplete markets in finance. In fact we consider two models for the stock price process. The first model is a geometric Lévy process in which the small jumps might have infinite activity. The second model is a geometric Lévy process where the small jumps are truncated or replaced by a Brownian motio...

The joint determination of capital structure and investment risk is examined. Optimal capital structure re ects both the tax advantages of debt less default costs (Modigliani-Miller), and the agency costs resulting from asset substitution (Jensen-Meckling). Agency costs restrict leverage and debt maturity and increase yield spreads, but their importance is relatively small for the range of envi...

We consider the partial hedging of stochastic electricity load pattern with static forward strategies. We assume that the company under consideration maximizes the risk adjusted expected value of its electricity cash flows. First, we calculate an optimal hedge ratio and after that we use this hedge ratio to solve the optimal hedging time. Our results indicate, for instance that agents with high...

This paper studies the value-relevance of FCD disclosures of European non-financial firms. Our findings show that these firms use FCDs to hedge and not to speculate but that the impact of hedging strategies’ disclosures is statistically and economically weak revealing that either (i) managers hedge only a small proportion of the currency risk they are facing, or that (ii) investors make systema...

If a firm has information pertinent to its own dividend stream that is not made available to its shareholders, it may be in the interests of the firm and its shareholders to adopt a financial hedging policy. This is in contrast with the Modigliani-Miller Theorem, which implies that, with informational symmetry, such financial hedging is irrelevant. In certain cases, hedging policies are identif...

The purpose of this paper is to empirically investigate the interaction between hedging, financing, and investment decisions. This work is relevant in that theoretical predictions are not necessarily identical to those in the case where only two decisions are being made. We argue that the way in which hedging affects the firms’ financing and investing decisions differs for firms with different ...

This paper investigates the hedging effectiveness of a dynamic moving window OLS hedging model, formed using wavelet decomposed time-series. The wavelet transform is applied to calculate the appropriate dynamic minimum-variance hedge ratio for various hedging horizons for a number of assets. The effectiveness of the dynamic multiscale hedging strategy is then tested, both inand out-of-sample, u...

There is little empirical evidence about risk management heterogeneity across firm types. I evaluate a policy that shifts oil price risk in highway procurement from the private sector to the government, reducing the cost of hedging to zero. In a tripledifferences design using data from Kansas and Iowa, I show that firms value hedging oil price risk between the auction and commencement of work. ...

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single...

The calendar spread options (CSOs) on agricultural commodities, most notably corn, soybeans and wheat, allow market participants to hedge the roll-over risk of futures contracts. Despite the interest from agricultural businesses, there is lack of both theoretical and empirical research on pricing and hedging performances of CSOs. We propose to price and hedge CSOs under geometric Brownian motio...