An optimal Strategy for Hedging with Short‐Term Futures Contracts

G. Larcher and G. Leobacher

Mathematical Finance, 2003, vol. 13, issue 2, 331-344

Abstract: The search for an optimal strategy to reduce the running risk in hedging a long‐term supply commitment with short‐dated futures contracts leads to a class of intrinsic optimization problems. We give an explicit analytic solution for this optimization problem if the market price of the commodity is based on a simple Gaussian model, thereby replacing previously used incomplete approximations to the optimal strategy.

Date: 2003
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