<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The article presents a problem of proper hedging strategy in expected utility model when forward contracts and options strategies are available. We consider a case of hedging when an investor formulates his own expectation on future price of underlying asset. In this paper we propose the way to measure effectiveness of hedging strategy, based on optimal forward hedge ratio. All results are derived assuming a constant absolute risk aversion utility function and a Black-Scholes framework.</p></abstract>

The article presents a problem of proper hedging strategy in expected utility model when forward contracts and options strategies are available. We consider a case of hedging when an investor formulates his own expectation on future price of underlying asset. In this paper we propose the way to measure effectiveness of hedging strategy, based on optimal forward hedge ratio. All results are derived assuming a constant absolute risk aversion utility function and a Black-Scholes framework.

How Firms Can Hedge Against Market Risk

Studies in Logic, Grammar and Rhetoric

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"How Firms Can Hedge Against Market Risk"}

The article presents a problem of proper hedging strategy in expected utility model when forward contracts and options strategies are available. We consider a...

How Firms Can Hedge Against Market Risk

Pubblicato online: 08 ago 2014

Pagine: 39 - 49

DOI: https://doi.org/10.2478/slgr-2014-0016

Parole chiave
hedging, Black-Scholes model, derivatives, options, forward, utility function, effectiveness of hedging strategy

© 2014 Studies in Logic, Grammar and Rhetoric

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

How Firms Can Hedge Against Market Risk

Pubblicato online: 08 ago 2014

Pagine: 39 - 49

DOI: https://doi.org/10.2478/slgr-2014-0016

Parole chiavehedging, Black-Scholes model, derivatives, options, forward, utility function, effectiveness of hedging strategy

© 2014 Studies in Logic, Grammar and Rhetoric

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Parole chiave
hedging, Black-Scholes model, derivatives, options, forward, utility function, effectiveness of hedging strategy