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Article: A Multi-stage Financial Hedging Strategy for a Risk-averse Firm with Contingent Payment

TitleA Multi-stage Financial Hedging Strategy for a Risk-averse Firm with Contingent Payment
Authors
Issue Date2015
PublisherInternational Association of Engineers. The Journal's web site is located at http://www.iaeng.org/IJAM/index.html
Citation
IAENG International Journal of Applied Mathematics, 2015, v. 45 n. 1, p. 71-76 How to Cite?
AbstractThis paper aims at addressing the contingent sales price risk mitigation problem of a risk-averse firm which procures some kind of commodity from the spot market as the major input for production. The downstream buyer pays the firm following a contingent payment rule by which the exact amount depends on the input commodity spot price when the product is physically delivered. In order to reduce the volatility originating from the contingent payment, a multistage financial hedging strategy using commodity futures contracts is proposed. This approach allows the firm to adjust the position in commodity futures market dynamically. The close-form optimal hedging strategies are presented when the firm adopts the exponential or mean-variance utility to characterize the risk-averse attitude.
Persistent Identifierhttp://hdl.handle.net/10722/208688
ISSN
2015 SCImago Journal Rankings: 0.334

 

DC FieldValueLanguage
dc.contributor.authorLi, Q-
dc.contributor.authorChu, LK-
dc.date.accessioned2015-03-18T09:04:35Z-
dc.date.available2015-03-18T09:04:35Z-
dc.date.issued2015-
dc.identifier.citationIAENG International Journal of Applied Mathematics, 2015, v. 45 n. 1, p. 71-76-
dc.identifier.issn1992-9978-
dc.identifier.urihttp://hdl.handle.net/10722/208688-
dc.description.abstractThis paper aims at addressing the contingent sales price risk mitigation problem of a risk-averse firm which procures some kind of commodity from the spot market as the major input for production. The downstream buyer pays the firm following a contingent payment rule by which the exact amount depends on the input commodity spot price when the product is physically delivered. In order to reduce the volatility originating from the contingent payment, a multistage financial hedging strategy using commodity futures contracts is proposed. This approach allows the firm to adjust the position in commodity futures market dynamically. The close-form optimal hedging strategies are presented when the firm adopts the exponential or mean-variance utility to characterize the risk-averse attitude.-
dc.languageeng-
dc.publisherInternational Association of Engineers. The Journal's web site is located at http://www.iaeng.org/IJAM/index.html-
dc.relation.ispartofIAENG International Journal of Applied Mathematics-
dc.titleA Multi-stage Financial Hedging Strategy for a Risk-averse Firm with Contingent Payment-
dc.typeArticle-
dc.identifier.emailChu, LK: lkchu@hkucc.hku.hk-
dc.identifier.authorityChu, LK=rp00113-
dc.description.naturelink_to_OA_fulltext-
dc.identifier.scopuseid_2-s2.0-84922972115-
dc.identifier.hkuros242581-
dc.identifier.hkuros242589-
dc.identifier.volume45-
dc.identifier.issue1-
dc.identifier.spage71-
dc.identifier.epage76-
dc.publisher.placeHong Kong-

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