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Production Flexibility and Hedging

Georges Dionne () and Marc Santugini

Cahiers de recherche from CIRPEE

Abstract: We extend the analysis of Losq (1982) on hedging with price and output uncertainty by endogenizing the output decision. Specifically, we consider the joint determination of output and hedging in the case of flexibility in production. We show that the risk-averse firm always maintains a short position in the futures market when the futures price is actuarially fair. Moreover, in the context of an example, we show that the presence of production flexibility reduces the incentive to hedge for all risk averse agents.

Keywords: Hedging; Full-hedging result; Production flexibility; Price and output uncertainty (search for similar items in EconPapers)
JEL-codes: G1 L2 (search for similar items in EconPapers)
Date: 2014
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Journal Article: Production Flexibility and Hedging (2015) Downloads
Working Paper: Production Flexibility and Hedging (2014) Downloads
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