Production and Hedging Decisions under Smooth Ambiguity Aversion
13 Pages Posted: 15 Sep 2012
Date Written: March 2012
This paper considers production and hedging decisions of firms under ambiguous price risk. We display that the separation property and the full hedging theorem hold in the presence of ambiguity. We also determine the condition that ambiguity aversion increases optimal hedging position.
Keywords: Future hedging, production decision, prudence, smooth ambiguity aversion
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