2022
DOI: 10.1002/ijfe.2664
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Optimal hedging in the presence of internal flexibility

Abstract: Internal flexibility aids in risk management and has a broader application than hedging instruments. This paper demonstrates how optimal hedging policies are affected by it. We develop a dynamic risk management model to capture financial and operational decisions. We first show that internal flexibility reduces the marginal value of hedging instruments. As a result, optimal financial hedging is selective and dependent on investment opportunities. These opportunities account for the majority of the difference b… Show more

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Cited by 1 publication
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