Optimal international hedging in commodity and currency forward markets

Benninga, Simon; Eldor, Rafael; Zilcha, Itzhak

doi:10.1016/0261-5606(85)90028-2

Cited by 91 publications

(56 citation statements)

References 21 publications

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“…Perfect cross hedging means var(e) = 0, i.e., all exchange rate risk can be hedged with the surrogate. But then the corresponding optimum output x** satiesfies the separation property (see, for example, Benninga, Eldor and Zilcha (1985):…”

Section: Proposition 4-if Initially the Firm Has Access To An Unbiasementioning

confidence: 99%

“…The literature reports that an international firm facing exchange rate risk can eliminate this risk altogether if it can use a currency forward market, or another forward traded asset which is perfectly correlated to the exchange rate (see Benninga, Eldor and Zilcha (1985), Kawai and Zilcha (1986), Broil and Zilcha (1992), ). In the absence of such markets, the firm can reduce its income risk by engaging in a hedging activity of assets correlated to the foreign exchange rate.…”

Section: Introductionmentioning

confidence: 99%

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Missing risk sharing markets and the benefits of cross-hedging in developing countries

Бролл¹,

Wahl

1998

Journal of Development Economics

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Section: Proposition 4-if Initially the Firm Has Access To An Unbiasementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Missing risk sharing markets and the benefits of cross-hedging in developing countries

Бролл¹,

Wahl

1998

Journal of Development Economics

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“…In the literature on the competitive exporting firm under exchange rate risk, it is typically assumed that the risk-averse firm makes its production and export decision prior to the resolution of exchange rate uncertainty (see, e.g., Benninga et al (1985), Kawai and Zilcha (1986) and Adam-Müller (1997. In this case, the firm is inflexible since it cannot react on the realized exchange rate.…”

Section: Introductionmentioning

confidence: 99%

“…As shown by Benninga et al (1985), Kawai and Zilcha (1986) and others, the optimal output of an export-inflexible firm, Q * inflex , which is obliged to export its entire output is implicitly given by c (Q * inflex ) = F P f . Comparing this optimality condition and the one given in Proposition 1 yields c (Q * inflex ) = F P f < P d + P f C = c (Q * ).…”

mentioning

confidence: 99%

Restricted Export Flexibility and Risk Management with Options and Futures

Adam-Müller

Wong

2001

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Restricted Export Flexibility and Risk Management with Options and FuturesThis paper examines the production, export and risk management decisions of a risk-averse competitive firm under exchange rate risk. The firm is export flexible in allocating its output to either the domestic market or a foreign market after observing the exchange rate. Export flexibility is restricted by certain minimum sales requirements that are due to long-term considerations. Currency options are sufficient to derive a separation result under restricted export flexibility. Under fairly priced currency futures and options, full hedging with both instruments is optimal. Introducing fairly-priced currency options stimulates production provided that the currency futures market is unbiased.JEL classification: F31; D21; D81

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“…More recent papers analyze the e ects of additional risks that are untradable. Benninga et al (1985) and Adam-M uller (1997) consider the e ects of a second risk that is multiplicatively combined with only the tradable risk Adam-M uller (1993), and Franke et al (1998) consider an independent, additive background risk in initial wealth. Cross hedging is discussed by Anderson and Danthine (1981), Broll et al (1995), Broll and Wahl (1996) and others.…”

Section: Introductionmentioning

confidence: 99%

Hedging price risk when real wealth matters

Adam-Müller

2000

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper analyzes optimal hedging of a tradable risk (e.g. price risk or exchange rate risk) with forward contracts in the presence of untradable in ation risk. Utility i s d e n e d o ver real wealth. Optimal forward positions are derived relative t o a g i v en initial exposure in the tradable risk. A nominally unbiased forward market usually implies a non-zero real risk premium and hence some risk taking. If untradable in ation risk is a monotone function of the tradable risk plus noise, cross hedging and speculating on the real risk premium are con icting objectives the level of relative risk aversion determines which objective is dominant in a nominally unbiased forward market. Terms of use: Documents in EconStor may JEL classi cation: D81, G11, D11Keywords: hedging, forward market, untradable in ation risk, relative r i s k a version I would like to thank Marc De Ceuster, G unter Franke, Roland Jeske and Michael Kohlmann for helpful comments and discussions. Remaining errors are mine, of course.

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Optimal international hedging in commodity and currency forward markets

Cited by 91 publications

References 21 publications

Missing risk sharing markets and the benefits of cross-hedging in developing countries

Missing risk sharing markets and the benefits of cross-hedging in developing countries

Restricted Export Flexibility and Risk Management with Options and Futures

Hedging price risk when real wealth matters

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