Dynamic optimal hedging with futures in portfolio context

Moustapha Pemy and Jules Sadefo Kamdem
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Moustapha Pemy: Towson University [Towson, MD, United States] - University System of Maryland

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Abstract: We investigate the optimal hedging strategy in a continuous time framework that is more adequate for commodities. We consider the consumption-investment problem where all asset prices follow mean- reverting jump-diffusion processes. The optimal investment and con- sumption strategies are derived in closed form. The framework is used to address one of the major risk factors faced by commodity produc- ers. We show that a commodity producer will be better off hedging his/her futures contracts by simultaneously investing in foreign ex- change products to minimize the adverse impacts of the jump risk prevalent in commodity prices.

Keywords: Lévy processes; Mean-Reverting Jump Diffusions; Resource Econmy (search for similar items in EconPapers)
Date: 2024
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Published in International Journal of Financial Engineering, In press

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04591643

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