Fuel hedging is a common risk management tool used in the airline industry. But past studies have not addressed the question of whether fuel hedging creates any benefit to airline operations. This study is the first work that empirically examines the role of fuel hedging in reducing airlines’ operating costs. Using US airlines data from 2000 through 2012, we find that, after accounting for the ...

A Bayesian optimal hedging model is developed to quantitatively analyze selective hedging behavior. Numerical results confirm that subjective market views can have a substantial impact on a hedger’s optimal position. The impact is most evident when the hedger speculates on future market price directions and/or is pessimistic about the effectiveness of hedging, i.e., a breakdown in the correlati...

The performance of optimal strategies for hedging a claim on a nontraded asset is analyzed. The claim is valued and hedged in a utility maximization framework, using exponential utility. A traded asset, correlated with that underlying the claim, is used for hedging, with the correlation typically close to 1. Using a distortion method [22] we derive a nonlinear expectation representation for the...

For a Cournot duopoly with a foreign firm exporting to the home firm’s market hedging against unfavorable shifts in the stochastic spot exchange rate is analyzed. In a two-stage setting with product market and hedging decisions we show that hedging can be used as a strategic device. Under constant and decreasing absolute risk aversion an increase in hedging volume by the foreign firm promotes i...

This study presents the empirical results for the relationship between the use of hedging techniques and the characteristics of UK multinational enterprises (MNEs). All the firms in the sample hedge foreign exchange (FX) exposure. The results indicate that UK firms focus on a very narrow set of hedging techniques. They make much greater use of derivatives than internal hedging techniques. The d...

Despite the importance of hedging in academic productions, its use in different disciplines and genres has been given little attention (Hyland, 1998; Crystal, 1995). More precisely, the role of different genders as contributors to this social phenomenon (i.e., research articles) has been taken as neutral, as if gender is inconsequential in identity construction. The studies done in English sugg...

Belief Elicitation in Experiments: Is there a Hedging Problem? Belief elicitation in economics experiments usually relies on paying subjects according to the accuracy of stated beliefs in addition to payments for other decisions. Such incentives, however, allow risk-averse subjects to hedge with their stated beliefs against adverse outcomes of other decisions in the experiment. This raises two ...

Index-based hedging instruments such as industry loss warranties are increasingly recognized as effective hedging tools for insurance and reinsurance portfolios. However, wider adoption of these instruments is inhibited by basis risk, the difference between the index-based payoff and the buyer's actual loss. This study presents a systematic approach for potential buyers to analyze and manage ba...