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:||A. > Business School > Accounting and Finance|
|Depositing User:||Devika Mohan|
|Date Deposited:||02 Mar 2010 06:46|
|Last Modified:||13 Oct 2016 14:17|
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