Cross hedging under multiplicative basis risk
| Autor: | Ingmar Nolte, Axel F. A. Adam-Müller |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2011 |
| Předmět: |
Economics and Econometrics
Actuarial science business.industry media_common.quotation_subject Multiplicative function Financial market Prudence Price risk Market neutral Cross hedging Econometrics Economics business Futures contract Basis risk Finance Risk management health care economics and organizations media_common |
| DOI: | 10.1016/j.jbankfin.2011.03.022 |
| Popis: | Cross hedging price risk in an incomplete financial market creates basis risk. We propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way. Under this specification, positive prudence is a necessary and sufficient condition for underhedging in an unbiased market. Using the example of cross hedging jet fuel price risk with crude oil futures, we show that the new specification is superior in describing the price series and that optimal cross hedges differ significantly from those derived under the traditional additive cross hedging model. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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