Arbeitspapier
Risk management with default-risky forwards
This paper studies the impact of counter-party default risk of forward contracts on a firm's production and hedging decisions. Using a model of a risk-averse competitive firm under price uncertainty, it derives several fundamental results. If expected profits from forward contracts are zero, the hedge ratio is surprisingly not affected by default risk under general preferences and general price distributions. This robustness result still holds if forwards are subject to additional basis risk. In general, the analysis shows that default risk is no valid reason to reduce hedge ratios if the size of a firm's forward position does not affect the counter-party's default probability. However, a firm's optimal output is negatively affected by default risk and it is generally advisable to hedge default risk with credit derivatives.
- Sprache
-
Englisch
- Erschienen in
-
Series: CFR working paper ; No. 08-11
- Klassifikation
-
Wirtschaft
Corporate Finance and Governance: General
Criteria for Decision-Making under Risk and Uncertainty
- Thema
-
risk management
forwards
default risk
hedging
production
OTC-Handel
Finanzderivat
Hedging
Entscheidung bei Unsicherheit
Risikomanagement
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Korn, Olaf
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Cologne, Centre for Financial Research (CFR)
- (wo)
-
Cologne
- (wann)
-
2008
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Korn, Olaf
- University of Cologne, Centre for Financial Research (CFR)
Entstanden
- 2008
Ähnliche Objekte (12)
Default-risky Sovereign Debt
Localising forward intensities for multiperiod corporate default
Localising ForwardIntensities forMultiperiod CorporateDefault
Derivatives and Default Risk
First-exit times and their applications in default risk management
First-exit times and their applications in default risk management
Machine Learning in Credit Risk Management - Advanced Default Risk and Credit Ratings Modeling
Deferred Taxation under Default Risk
Maturity, indebtedness, and default risk
Asset pricing and default risk
Correlated default and parameter risk
How Risky is the Value at Risk?
Default-risky Sovereign Debt
Localising forward intensities for multiperiod corporate default
Localising ForwardIntensities forMultiperiod CorporateDefault
Derivatives and Default Risk
First-exit times and their applications in default risk management
First-exit times and their applications in default risk management
Machine Learning in Credit Risk Management - Advanced Default Risk and Credit Ratings Modeling
Deferred Taxation under Default Risk
Maturity, indebtedness, and default risk
Asset pricing and default risk
Correlated default and parameter risk
How Risky is the Value at Risk?
Default-risky Sovereign Debt
Localising forward intensities for multiperiod corporate default
Localising ForwardIntensities forMultiperiod CorporateDefault
Derivatives and Default Risk
First-exit times and their applications in default risk management
First-exit times and their applications in default risk management
Machine Learning in Credit Risk Management - Advanced Default Risk and Credit Ratings Modeling
Deferred Taxation under Default Risk
Maturity, indebtedness, and default risk
Asset pricing and default risk
Correlated default and parameter risk