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 | Oxford University Press (OUP) |
| Institute of Mathematics and its Applications | |
| Journal | IMA Journal of Management Mathematics |
| ISSN | 1471-678X |
| Electronic | 1471-6798 |
| Publication dates | |
| Online | 25 Jun 2009 |
| Jan 2010 | |
| Publication process dates | |
| Submitted | 02 Jul 2008 |
| Accepted | 22 May 2009 |
| Deposited | 02 Mar 2010 |
| Output status | Published |
| Digital Object Identifier (DOI) | https://doi.org/10.1093/imaman/dpp013 |
| Language | English |
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