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Article: Optimal bidding and hedging in international markets

TitleOptimal bidding and hedging in international markets
Authors
KeywordsCurrency futures
Currency options
Prudence
Uncertain risk exposure
Issue Date2004
PublisherPergamon. 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?
AbstractThis 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 Identifierhttp://hdl.handle.net/10722/85717
ISSN
2015 Impact Factor: 1.524
2015 SCImago Journal Rankings: 1.316
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorLien, Den_HK
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2010-09-06T09:08:22Z-
dc.date.available2010-09-06T09:08:22Z-
dc.date.issued2004en_HK
dc.identifier.citationJournal Of International Money And Finance, 2004, v. 23 n. 5, p. 785-798en_HK
dc.identifier.issn0261-5606en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85717-
dc.description.abstractThis 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.languageengen_HK
dc.publisherPergamon. The Journal's web site is located at http://www.elsevier.com/locate/jimfen_HK
dc.relation.ispartofJournal of International Money and Financeen_HK
dc.subjectCurrency futuresen_HK
dc.subjectCurrency optionsen_HK
dc.subjectPrudenceen_HK
dc.subjectUncertain risk exposureen_HK
dc.titleOptimal bidding and hedging in international marketsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://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+Marketsen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.jimonfin.2004.03.003en_HK
dc.identifier.scopuseid_2-s2.0-0344528539en_HK
dc.identifier.hkuros102144en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0344528539&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume23en_HK
dc.identifier.issue5en_HK
dc.identifier.spage785en_HK
dc.identifier.epage798en_HK
dc.identifier.isiWOS:000222952400004-
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridLien, D=7006094582en_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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