Production Flexibility and Hedging
Georges Dionne () and
Cahiers de recherche from CIRPEE
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)
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Journal Article: Production Flexibility and Hedging (2015)
Working Paper: Production Flexibility and Hedging (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1417
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