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Article: Production And Hedging In Futures Markets With Multiple Delivery Specifications

TitleProduction And Hedging In Futures Markets With Multiple Delivery Specifications
Authors
Issue Date2014
PublisherSpringer. The Journal's web site is located at http://www.springer.it/libri_libro.asp?id=205
Citation
Decisions in Economics and Finance, 2014, v. 37, p. 413-421 How to Cite?
AbstractThis paper examines the behavior of the competitive firm under price uncertainty. To hedge the price risk, the firm trades unbiased commodity futures contracts with multiple delivery specifications from which delivery risk prevails. We show that the firm optimally produces less in the presence than in the absence of the delivery risk. We show further that the concept of expectation dependence that describes how the delivery risk is correlated with the random spot price plays a pivotal role in determining the firm's optimal futures position. Specifically, an under-hedge is optimal if the random spot price is positively expectation dependent on the delivery risk. The firm's optimal futures position becomes indeterminate if the random spot price is negatively expectation dependent on the delivery risk.
Persistent Identifierhttp://hdl.handle.net/10722/205984

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_US
dc.date.accessioned2014-10-20T10:42:17Z-
dc.date.available2014-10-20T10:42:17Z-
dc.date.issued2014en_US
dc.identifier.citationDecisions in Economics and Finance, 2014, v. 37, p. 413-421en_US
dc.identifier.urihttp://hdl.handle.net/10722/205984-
dc.description.abstractThis paper examines the behavior of the competitive firm under price uncertainty. To hedge the price risk, the firm trades unbiased commodity futures contracts with multiple delivery specifications from which delivery risk prevails. We show that the firm optimally produces less in the presence than in the absence of the delivery risk. We show further that the concept of expectation dependence that describes how the delivery risk is correlated with the random spot price plays a pivotal role in determining the firm's optimal futures position. Specifically, an under-hedge is optimal if the random spot price is positively expectation dependent on the delivery risk. The firm's optimal futures position becomes indeterminate if the random spot price is negatively expectation dependent on the delivery risk.en_US
dc.languageengen_US
dc.publisherSpringer. The Journal's web site is located at http://www.springer.it/libri_libro.asp?id=205en_US
dc.relation.ispartofDecisions in Economics and Financeen_US
dc.rightsThe original publication is available at www.springerlink.comen_US
dc.titleProduction And Hedging In Futures Markets With Multiple Delivery Specificationsen_US
dc.typeArticleen_US
dc.identifier.emailWong, KP: kpwong@econ.hku.hken_US
dc.identifier.authorityWong, KP=rp01112en_US
dc.identifier.doi10.1007/s10203-013-0152-zen_US
dc.identifier.hkuros241197en_US
dc.identifier.volume37en_US
dc.identifier.spage413en_US
dc.identifier.epage421en_US

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