On the exact minimum variance hedge of an un- certain quantity with flexibility

Benoît Sévi

Cahiers du CREDEN (CREDEN Working Papers) from CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1

Abstract: The purpose of this paper is to investigate the impact of production cost variability upon hedging decision when the firm is a risk minimizer agent facing both price and quantity uncertainties. We show, under a perfect flexibility assumption, that considering cost variability leads to a lower [higher] optimal hedge ratio assuming a positive [negative] relation between prices and quantities.

Keywords: MINIMUM VARIANCE HEDGE; UNCERTAIN DEMAND; PERFECT FLEXIBILITY; COST FUNCTION. (search for similar items in EconPapers)
JEL-codes: D21 D81 G11 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:mop:credwp:04.12.53

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