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Article: Coordinating Operational Policy with Financial Hedging for Risk-averse Firms

TitleCoordinating Operational Policy with Financial Hedging for Risk-averse Firms
Authors
Issue Date2015
Citation
Omega, 2015 How to Cite?
AbstractA risk-averse firm's financial hedging activity can impact the decision making in its daily operations. We introduce a CE-based approach that can help the firm to simplify the procedure in making hedging-consistent decisions. A key feature of this new approach is that it allows for the existence of nonfinancial random factors, which give rise to the risk exposure that cannot be hedged in the financial market. By using a CE operator, we show that the optimal operational policy can be obtained by maximizing the CE-based value function. Although the CE operator may bring additional nonlinearity to the value function, we find that the commonly desired base-stock policy can remain optimal under specific conditions. We hope that this new approach can help pave the way for future investigation on joint operations management and financial hedging problems in dynamic settings
Persistent Identifierhttp://hdl.handle.net/10722/211778

 

DC FieldValueLanguage
dc.contributor.authorNI, J-
dc.contributor.authorChu, LK-
dc.contributor.authorYen, BP-
dc.date.accessioned2015-07-21T02:10:31Z-
dc.date.available2015-07-21T02:10:31Z-
dc.date.issued2015-
dc.identifier.citationOmega, 2015-
dc.identifier.urihttp://hdl.handle.net/10722/211778-
dc.description.abstractA risk-averse firm's financial hedging activity can impact the decision making in its daily operations. We introduce a CE-based approach that can help the firm to simplify the procedure in making hedging-consistent decisions. A key feature of this new approach is that it allows for the existence of nonfinancial random factors, which give rise to the risk exposure that cannot be hedged in the financial market. By using a CE operator, we show that the optimal operational policy can be obtained by maximizing the CE-based value function. Although the CE operator may bring additional nonlinearity to the value function, we find that the commonly desired base-stock policy can remain optimal under specific conditions. We hope that this new approach can help pave the way for future investigation on joint operations management and financial hedging problems in dynamic settings-
dc.languageeng-
dc.relation.ispartofOmega-
dc.titleCoordinating Operational Policy with Financial Hedging for Risk-averse Firms-
dc.typeArticle-
dc.identifier.emailChu, LK: lkchu@hkucc.hku.hk-
dc.identifier.emailYen, BP: benyen@business.hku.hk-
dc.identifier.authorityChu, LK=rp00113-
dc.identifier.authorityYen, BP=rp01121-
dc.identifier.doi10.1016/j.omega.2015.07.001-
dc.identifier.hkuros245667-

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