Hedging mean-reverting commodities.

Article


Broll, U., Clark, E. and Lukas, E. 2010. Hedging mean-reverting commodities. IMA Journal of Management Mathematics. 21 (1), pp. 19-26. https://doi.org/10.1093/imaman/dpp013
TypeArticle
TitleHedging mean-reverting commodities.
AuthorsBroll, U., Clark, E. and Lukas, E.
Abstract

This paper uses the expected utility framework to examine the optimal hedging decision for commodities with mean-reverting price processes. The derived results show that when commodity prices follow a mean-reverting process, the optimal hedge ratio differs significantly from the classical results found under standard geometric Brownian motion. Hence, a failure to accommodate mean reversion when it exists can lead to systematic biases in hedging decisions.

PublisherOUP
JournalIMA Journal of Management Mathematics
ISSN1471-678X
Publication dates
PrintJan 2010
Publication process dates
Deposited02 Mar 2010
Output statusPublished
Digital Object Identifier (DOI)https://doi.org/10.1093/imaman/dpp013
LanguageEnglish
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