Optimal hedging by firms with multiple sources of risky revenues

Itzhak Zilcha; Udo Broll

doi:10.1016/0165-1765(92)90188-5

Optimal hedging by firms with multiple sources of risky revenues

Itzhak Zilcha^*, Udo Broll

^*Corresponding author for this work

School of Economics

University of Konstanz

Research output: Contribution to journal › Article › peer-review

12 Scopus citations

Abstract

We study the hedging behavior of competitive risk-averse firms producing under price uncertainty and owning other sources of risky income as well. We show that the well-known 'Separation property' holds when a futures market for the commodity produced is available. However, unbiased futures market does not imply full-hedging by which the firm avoids price risk altogether.

Original language	English
Pages (from-to)	473-477
Number of pages	5
Journal	Economics Letters
Volume	39
Issue number	4
DOIs	https://doi.org/10.1016/0165-1765(92)90188-5
State	Published - Aug 1992

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abstract = "We study the hedging behavior of competitive risk-averse firms producing under price uncertainty and owning other sources of risky income as well. We show that the well-known 'Separation property' holds when a futures market for the commodity produced is available. However, unbiased futures market does not imply full-hedging by which the firm avoids price risk altogether.",

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AB - We study the hedging behavior of competitive risk-averse firms producing under price uncertainty and owning other sources of risky income as well. We show that the well-known 'Separation property' holds when a futures market for the commodity produced is available. However, unbiased futures market does not imply full-hedging by which the firm avoids price risk altogether.

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Optimal hedging by firms with multiple sources of risky revenues

Abstract

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