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Article: Optimal bidding and hedging in international markets
Title | Optimal bidding and hedging in international markets |
---|---|
Authors | |
Keywords | Currency futures Currency options Prudence Uncertain risk exposure |
Issue Date | 2004 |
Publisher | Pergamon. The Journal's web site is located at http://www.elsevier.com/locate/jimf |
Citation | Journal Of International Money And Finance, 2004, v. 23 n. 5, p. 785-798 How to Cite? |
Abstract | This paper examines the optimal bidding and hedging decisions of a risk-averse contractor for a construction project abroad. We show that currency options play no role as a hedging instrument when the contractor has a quadratic utility function. However, if the contractor is prudent, currency options are used for hedging purposes. Prudence thus generates a hedging demand for currency options when foreign exchange exposure is uncertain. Contrary to the conventional wisdom, we show that currency hedging may have perverse effects on the contractor's bidding behavior. In a canonical example with negative exponential utility functions, we demonstrate that the possibilities for the contractor to bid more aggressively in the absence of currency hedging are not factitious. © 2004 Elsevier Ltd. All rights reserved. |
Persistent Identifier | http://hdl.handle.net/10722/85717 |
ISSN | 2023 Impact Factor: 2.8 2023 SCImago Journal Rankings: 1.351 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Lien, D | en_HK |
dc.contributor.author | Wong, KP | en_HK |
dc.date.accessioned | 2010-09-06T09:08:22Z | - |
dc.date.available | 2010-09-06T09:08:22Z | - |
dc.date.issued | 2004 | en_HK |
dc.identifier.citation | Journal Of International Money And Finance, 2004, v. 23 n. 5, p. 785-798 | en_HK |
dc.identifier.issn | 0261-5606 | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/85717 | - |
dc.description.abstract | This paper examines the optimal bidding and hedging decisions of a risk-averse contractor for a construction project abroad. We show that currency options play no role as a hedging instrument when the contractor has a quadratic utility function. However, if the contractor is prudent, currency options are used for hedging purposes. Prudence thus generates a hedging demand for currency options when foreign exchange exposure is uncertain. Contrary to the conventional wisdom, we show that currency hedging may have perverse effects on the contractor's bidding behavior. In a canonical example with negative exponential utility functions, we demonstrate that the possibilities for the contractor to bid more aggressively in the absence of currency hedging are not factitious. © 2004 Elsevier Ltd. All rights reserved. | en_HK |
dc.language | eng | en_HK |
dc.publisher | Pergamon. The Journal's web site is located at http://www.elsevier.com/locate/jimf | en_HK |
dc.relation.ispartof | Journal of International Money and Finance | en_HK |
dc.subject | Currency futures | en_HK |
dc.subject | Currency options | en_HK |
dc.subject | Prudence | en_HK |
dc.subject | Uncertain risk exposure | en_HK |
dc.title | Optimal bidding and hedging in international markets | en_HK |
dc.type | Article | en_HK |
dc.identifier.openurl | http://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0261-5606&volume=23&spage=785&epage=798&date=2004&atitle=Optimal+Bidding+and+Hedging+in+International+Markets | en_HK |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | en_HK |
dc.identifier.authority | Wong, KP=rp01112 | en_HK |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.jimonfin.2004.03.003 | en_HK |
dc.identifier.scopus | eid_2-s2.0-0344528539 | en_HK |
dc.identifier.hkuros | 102144 | en_HK |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-0344528539&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 23 | en_HK |
dc.identifier.issue | 5 | en_HK |
dc.identifier.spage | 785 | en_HK |
dc.identifier.epage | 798 | en_HK |
dc.identifier.isi | WOS:000222952400004 | - |
dc.publisher.place | United Kingdom | en_HK |
dc.identifier.scopusauthorid | Lien, D=7006094582 | en_HK |
dc.identifier.scopusauthorid | Wong, KP=7404759417 | en_HK |
dc.identifier.issnl | 0261-5606 | - |