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Title:Monopoly power limits hedging PDF Logo
Authors:Muermann, Alexander
Shore, Stephen H.
Issue Date:2008
Series/Report no.:CFS Working Paper 2008/37
Abstract:When a spot market monopolist participates in a derivatives market, she has an incentive to deviate from the spot market monopoly optimum to make her derivatives market position more profitable. When contracts can only be written contingent on the spot price, a risk-averse monopolist chooses to participate in the derivatives market to hedge her risk, and she reduces expected profits by doing so. However, eliminating all risk is impossible. These results are independent of the shape of the demand function, the distribution of demand shocks, the nature of preferences or the set of derivatives contracts.
Subjects:Spot Market Power
Derivates Market
Hedging
JEL:D24
G32
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-60646
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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