Effects of skewness and kurtosis on production and hedging decisions: a skewed t distribution approach

Donald Lien and Yaqin Wang

The European Journal of Finance, 2015, vol. 21, issue 13-14, 1132-1143

Abstract: This paper assumes that the spot price follows a skewed Student t distribution to analyze the effects of skewness and kurtosis on production and hedging decisions for a competitive firm. Under a negative exponential utility function, the firm will not over-hedge (under-hedge) when the spot price is positively (negatively) skewed. The extent of under-hedge (over-hedge) decreases as the forward price increases. Compared with the mean-variance hedger, the producer will hedge more (less) when negative (positive) skewness prevails. In addition, an increase in the skewness reduces the demand for hedging. The effect of the kurtosis, however, depends on the sign of the skewness. When the spot price is positively (negatively) skewed, an increase in kurtosis leads to a smaller (larger) futures position.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2011.644858 (text/html)
Access to full text is restricted to subscribers.

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:taf:eurjfi:v:21:y:2015:i:13-14:p:1132-1143

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2011.644858

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().