Dynamic Optimal Hedge Ratio Design when Price and Production are stochastic with Jump

Nyassoke Titi Gaston Clément, Jules Sadefo-Kamdem and Louis Aimé Fono ()
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Nyassoke Titi Gaston Clément: Université de Douala
Jules Sadefo-Kamdem: MRE - Montpellier Recherche en Economie - UM - Université de Montpellier
Louis Aimé Fono: Université de Douala
Authors registered in the RePEc Author Service: Jules SADEFO KAMDEM

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Abstract: In this paper, we focus on the farmer's risk income, by using commodity futures, when price and output processes are correlated random represented by jump-diffusion models. We evaluate the expected utility of the farmer's wealth and we determine, at each instant of time, the optimal consumption rate and hedge position at given the time to harvest and state variables. We find a closed form optimal position of consumption and position rate in case of CARA utility investor. This result (see table 1.5) is a generalization of Ho (1984) result who consider the particular case where price and output are diffusion models.

Keywords: Jump-diffusion process; futures; stochastic dynamic programming; Lévy measure; risk management (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ore, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02417401v1
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Published in Annals of Finance, 2022, 18 (3), pp.419-428. ⟨10.1007/s10436-022-00410-1⟩

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Journal Article: Dynamic optimal hedge ratio design when price and production are stochastic with jump (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02417401

DOI: 10.1007/s10436-022-00410-1

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