Minimum-Variance Hedging for Managing Risks in Inventory Models with Price Fluctuations

Caner Canyakmaz, Fikri Karaesmen and Süleyman Özekici

Foundations and Trends(R) in Technology, Information and Operations Management, 2017, vol. 11, issue 1-2, 107-123

Abstract: We consider the financial hedging of a random operational cash flow that arises in inventory operations with price and demand uncertainty. We use a variance minimization approach to find a financial portfolio that would minimize the total variance of operational and financial returns. For inventory models that involve continuous price fluctuations and price-dependent demand that arrives in continuous time, we characterize the minimum-variance hedging policies and numerically illustrate their effectiveness.

Keywords: Operational risk management; Contingency planning; Commodity price risk; Supply chain disrutpions (search for similar items in EconPapers)
JEL-codes: G20 G32 M11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:now:fnttom:0200000073

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