The Derived Demand with Hedging Cost Uncertainty in the Futures Markets

Jacob Paroush and Avner Wolf

Economic Journal, 1992, vol. 102, issue 413, 831-44

Abstract: This study explores the significance of production technology and other parameters on the employment of inputs and hedging. The paper establishes an explicit relationship between the risk as well as prices parameters and the derived demand, production and hedging. The authors find that the futures price relative to the expected spot price affects the demand for production factors. Additionally, the presence of basis risk determines the impact of prices and risk parameters on the derived demand for inputs. Production technology is instrumental in fixing the size of the change in the demand, given a change in the model's parameters. Copyright 1992 by Royal Economic Society.

Date: 1992
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