Arbeitspapier
Hedging Price Risk When Real Wealth Matters
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 inflation risk. Utility is defined over real wealth. Optimal forward positions are derived relative to a given 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 inflation risk is a monotone function of the tradable risk plus noise, cross hedging and speculating on the real risk premium are conflicting objectives; the level of relative risk aversion determines which objective is dominant in a nominally unbiased forward market.
- Language
-
Englisch
- Bibliographic citation
-
Series: CoFE Discussion Paper ; No. 99/12
- Classification
-
Wirtschaft
Criteria for Decision-Making under Risk and Uncertainty
Portfolio Choice; Investment Decisions
Consumer Economics: Theory
- Subject
-
Derivat
Hedging
Inflation
Portfolio-Management
Erwartungsnutzen
Theorie
Entscheidung bei Risiko
- Event
-
Geistige Schöpfung
- (who)
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Adam-Müller, Axel F. A.
- Event
-
Veröffentlichung
- (who)
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University of Konstanz, Center of Finance and Econometrics (CoFE)
- (where)
-
Konstanz
- (when)
-
1999
- Handle
- URN
-
urn:nbn:de:bsz:352-opus-3214
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Adam-Müller, Axel F. A.
- University of Konstanz, Center of Finance and Econometrics (CoFE)
Time of origin
- 1999
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