We address the problem of hedging inventory risk for a short lifecycle or seasonal item when its demand is correlated with the price of a financial asset. We show how to construct optimal hedging transactions that minimize the variance of profit and increase the expected utility for a risk-averse decision-maker. We show that for a wide range of hedging strategies and utility functions, a risk-a...

one tactful strategy in political rhetoric is hedging which is associated with vagueness and innuendos. despite the studies that address hedging in academic discourse and conversation analysis, studies that investigate hedges in relation to political power, face, and politeness are tremendously few. to this aim, four political interviews were selected from cnn and bbc websites on the basis of t...

In variable environments, organisms must have strategies to ensure fitness as conditions change. For plants, germination can time emergence with favourable conditions for later growth and reproduction (predictive germination), spread the risk of unfavourable conditions (bet hedging) or both (integrated strategies). Here we explored the adaptive value of within- and among-year germination timing...

The basic contracts traded on energy exchanges are swaps. They involve fixed-rate payments for the delivery of electricity over a certain period of time. It has been shown that options on these swaps (called electricity swaptions) can be priced efficiently using a Hilbert space-valued timeinhomogeneous jump-diffusion model for the forward curve. We consider the mean-variance hedging problem for...

This work is devoted to the discrete time hedging of the American option on a dividendpaying stock with a convex payoff, the particular case of which is American call option. Perfect hedging requires continuous trading in time and knowledge of the partial derivative of the value function of the American option in the underlying asset. Neither one can trade continuously in time nor the closed-fo...

We study a discrete time hedging and pricing problem in a market with liquidity costs. Using Leland’s discrete time replication scheme [Leland, H.E., 1985. Journal of Finance, 1283–1301], we consider a discrete time version of the Black–Scholes model and a delta hedging strategy. We derive a partial differential equation for the option price in the presence of liquidity costs and develop a modi...

We measure asset price jumps by the hedging error they induce on a delta-hedged position of European options. Based on high frequency data, we propose a nonparametric estimator for this measure and a test for its positivity. We further construct a Kolmogorov-type test for the presence of jump hedging errors for a possibly infinite-dimensional family of options based on the worst-case contract i...

In this paper, the financial engineering minimum risk-based portfolio hedging model is first analyzed. It is then followed by the investigation on various major estimation methods for the minimum risk hedge ratio. The results revealed in the current study show that the HR obtained by the ordinary least squares (OLS) model is maximal and the out-of-sample hedging performance is the best; however...

This research compares derivative pricing model and statistical time-series approaches to hedging. The finance literature stresses the former approach, while the applied economics literature has focused on the latter. We compare the out-of-sample hedging effectiveness of the two approaches when hedging commodity price risk using futures contracts. For various methods of parameter estimation and...

In this paper we analyze the manner in which the demand generated by dynamic hedging strategies aaects the equilibrium price of the underlying asset. We derive an explicit expression for the transformation of market volatility under the impact of such strategies. It turns out that volatility increases and becomes time and price dependent. The strength of these eeects however depends not only on...