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http://hdl.handle.net/10419/57728
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| Title: | | Hedging price risk when payment dates are uncertain  |
| Authors: | | Korn, Olaf |
| Issue Date: | | 2009 |
| Series/Report no.: | | CFR Working Paper 07-14 |
| Abstract: | | This paper studies the hedging of price risk when payment dates are uncertain, a problem that frequently occurs in practice. It derives and establishes the variance minimizing dynamic hedging strategy, using forward contracts with different times to maturity. The resulting strategy fully hedges the expected price exposure for each possible payment date and is, therefore, easy to implement. An empirical study compares the performance of the variance minimizing strategy with heuristic alternatives, based on data from the crude oil market and the foreign exchange market. Our analysis shows that the variance minimizing strategy clearly outperforms the alternatives for the crude oil market. For the foreign exchange market, a simple static hedging strategy is sufficient. |
| Subjects: | | risk management hedging forwards uncertainty of time |
| JEL: | | G30 D81 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFR Working Papers, Centre for Financial Research (CFR), Universität Köln
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