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Hedging Decisions (hedging + decision)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

OPTIMAL EXPORT AND HEDGING DECISIONS WHEN FORWARD MARKETS ARE INCOMPLETE

BULLETIN OF ECONOMIC RESEARCH, Issue 1 2007
Kit Pong Wong
D81; F23; F31 ABSTRACT This paper examines the behaviour of the competitive firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. There is a forward market between the home currency and one foreign country's currency, but there are no hedging instruments directly related to the other foreign country's currency. We show that the separation theorem holds when the firm optimally exports to the foreign country with the currency forward market. The full-hedging theorem holds either when the firm exports exclusively to the foreign country with the currency forward market or when the relevant spot exchange rates are independent. In the case that the relevant spot exchange rates are positively (negatively) correlated in the sense of regression dependence, the firm optimally opts for a short (long) forward position for cross-hedging purposes. [source]

Board Composition And Corporate Use Of Interest Rate Derivatives

THE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2004
Kenneth A. Borokhovich
Abstract We provide new evidence on the motives for corporate hedging by examining the relation between the quality of the firms' monitoring mechanisms and the quantity of interest rate derivatives employed. Because the capital structure decision and hedging decision are considered to be endogenous, the firm's capital structure and level of interest rate derivative use are modeled simultaneously. We show a positive relation between the relative influence of outside directors and the quantity of derivatives used. This evidence indicates that outside directors take an active role in derivatives usage and that firms employ hedging in the shareholders' best interests. [source]

The impact of skewness in the hedging decision

THE JOURNAL OF FUTURES MARKETS, Issue 5 2006
Scott Gilbert
The impact of skewness in the hedger's objective function is tested using a model of hedging derived from a third-order Taylor Series approximation of expected utility. To determine the effect of price skewness upon hedging and speculation, analytical results are derived using an example of cotton storage. Findings suggest that when forward risk premiums and price skewness in the spot asset have opposite signs, speculation increases relative to the mean-variance model. When the signs are identical, speculation will decrease, contradicting findings of mean-variance models. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:503,520, 2006 [source]

The Simultaneous Hedging of Price Risk, Crop Yield Risk and Currency Risk

CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS, Issue 2 2000
Govindaray N. Nayak
This study analyzes the joint hedging decision of a Canadian firm in U S. based price and yield futures. The key results of this study are that jointly hedging price and yield can reduce more revenue risk than hedging only with price futures. For offshore hedgers, the evidence shows that foreign exchange risk is important and can be reduced by jointly hedging in the currency futures markets. Nous analysons les décisions de couverture multiple d'une entreprise canadienne contre les risques afférents aux prix et aux rendement à terme. Les conclusions clés de l'étude sont qu'une couverture simultanée contre ces deux risques peut accorder une meilleure protection qu'une couverture établie seulement contre les risques des prix à terme. Pour ceux qui font affaire avec un pays étranger, l'expérience montre que le risque afférent au taux de change est important et qu'il est possible de le réduire en se couvrant en m,me temps contre les risques affectant la valeur à terme de l'argent. [source]

Financial Constraints, Competition, and Hedging in Industry Equilibrium

THE JOURNAL OF FINANCE, Issue 5 2007
TIM ADAM
ABSTRACT We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries. [source]

The effects of skewness on optimal production and hedging decisions: An application of the skew-normal distribution

THE JOURNAL OF FUTURES MARKETS, Issue 3 2010
Donald Lien
Assume that the spot price has a skew-normal distribution. This study investigates the effect of skewness on optimal production and hedging decisions. It is shown that skewness has no effect on the optimal production level but induces the firm to become more active in futures trading. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:278,289, 2010 [source]

Hedging under counterparty credit uncertainty

THE JOURNAL OF FUTURES MARKETS, Issue 3 2008
Olivier Mahul
This study investigates optimal production and hedging decisions for firms facing price risk that can be hedged with vulnerable contracts, i.e., exposed to nonhedgeable endogenous counterparty credit risk. When vulnerable forward contracts are the only hedging instruments available, the firm's optimal level of production is lower than without credit risk. Under plausible conditions on the stochastic dependence between the commodity price and the counterparty's assets, the firm does not sell its entire production on the vulnerable forward market. When options on forward contracts are also available, the optimal hedging strategy requires a long put position. This provides a new rationale for the hedging role of options in the over-the-counter markets exposed to counterparty credit risk. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28: 248,263, 2008 [source]

Hedging in Futures and Options Markets with Basis Risk

THE JOURNAL OF FUTURES MARKETS, Issue 1 2002
Olivier Mahul
This paper analyzes the hedging decisions for firms facing price and basis risk. Two conditions assumed in most models on optimal hedging are relaxed. Hence, (i) the spot price is not necessarily linear in both the settlement price and the basis risk and (ii) futures contracts and options on futures at different strike prices are available. The design of the first-best hedging instrument is first derived and then it is used to examine the optimal hedging strategy in futures and options markets. The role of options as useful hedging tools is highlighted from the shape of the first-best solution. © 2002 John Wiley & Sons, Inc. Jrl Fut Mark 22:59,72, 2002 [source]