Beyond the Minimum Variance Hedge

17 Pages Posted: 23 Feb 2007

See all articles by Jörg Laitenberger

Jörg Laitenberger

University of Hannover - Economics and Business Administration Area

Date Written: January 5, 2007

Abstract

In this note a general model of optimal hedging is studied which emcompasses most other existing hedging models. Assuming a convex form of the function of deadweight costs, the optimal hedging strategy is discussed. An analogy to the analysis of behavior towards risk of an expected utility maximizer can be used to characterize the class of optimal hedging behaviors in the case of both complete and incomplete markets. Finally, the question which risks should be hedged is addressed. Such risks are characterized by a function of the convexity of the deadweight costs and the marginal impact of the available hedging instruments on the risks under consideration. For simple hedging instruments like futures the optimal hedging strategy and the hedge ratios are presented.

Keywords: Risk management, Hedging

JEL Classification: D81, G13, G31

Suggested Citation

Laitenberger, Jörg, Beyond the Minimum Variance Hedge (January 5, 2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: https://ssrn.com/abstract=964667 or http://dx.doi.org/10.2139/ssrn.964667

Jörg Laitenberger (Contact Author)

University of Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany
+49-511-7624668 (Phone)
+49-511-7624670 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
138
Abstract Views
1,201
rank
260,949
PlumX Metrics