Optimal hedge ratio and elasticity of risk aversion

Udo Broll () and Jack E. Wahl ()
Additional contact information
Udo Broll: Department of Economics, Dresden University of Technology
Jack E. Wahl: Department of Finance, University of Dortmund

Economics Bulletin, 2004, vol. 6, issue 5, 1-7

Abstract: We apply the mean-standard deviation paradigm to examine a widely used model of the hedging literature. As the hedging model satisfies a scale and location condition the mean-standard deviation technique provides more intuition for the revision of the firm's optimum risk taking when price volatility changes. By introducing risk aversion elasticity we describe the interaction of price risk and optimum hedge. We show that with unit risk aversion elasticity optimum hedge ratio is invariant to changes in price volatilities.

Keywords: elasticity; of; risk; aversion (search for similar items in EconPapers)
JEL-codes: D2 F3 (search for similar items in EconPapers)
Date: 2004-06-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/pubs/EB/2004/Volume6/EB-03F30006A.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-03f30006

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().