Dynamic Hedging of Real Wealth Risk

Arbeitspapier

International and national investors are often exposed to real wealth risks, stemming from volatile asset prices and inflation uncertainty, making it difficult to stabilize consumption patterns. However, investors can enter futures markets to hedge against these risks. The paper develops a simple continuous-time dynamic model, where the evolution of asset price, price level and futures price and hence real wealth is stochastic. For a risk averse investor, optimal consumption and hedging strategy are derived and discussed. It is shown that hedging increases the investor's wellbeing in terms of intertemporal utility of consumption.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Dresden Discussion Paper Series in Economics ; No. 01/05

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; International Investment; Long-term Capital Movements
• Subject: wealth ; asset price ; dynamic hedging ; optimum consumption ; Vermögen ; Risikomanagement ; Hedging ; Termingeschäft ; Zeitpräferenz ; Konsumtheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schubert, Stefan ; Broll, Udo
• Event: Veröffentlichung
• (who): Technische Universität Dresden, Fakultät Wirtschaftswissenschaften
• (where): Dresden
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/22718
• Last update: 10.03.2025, 11:43 AM CET