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
Type | Article |
---|---|
Title | Hedging mean-reverting commodities. |
Authors | Broll, 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. |
Publisher | OUP |
Journal | IMA Journal of Management Mathematics |
ISSN | 1471-678X |
Publication dates | |
Jan 2010 | |
Publication process dates | |
Deposited | 02 Mar 2010 |
Output status | Published |
Digital Object Identifier (DOI) | https://doi.org/10.1093/imaman/dpp013 |
Language | English |
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