Hedging mean-reverting commodities.
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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.
|Research Areas:||Business School > Accounting and Finance|
|Citations on ISI Web of Science:||0|
|Deposited On:||02 Mar 2010 06:46|
|Last Modified:||02 Jul 2014 11:27|
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