This article develops a model for evaluating alternative hedging strategies for financially constrained firms. A key advantage of the model is the ability to capture the intertemporal effects of hedging on the firm’s financial situation. We characterize the optimal hedge. A wide range of alternative hedging strategies can be specified and the model allows us to determine in each case if the hed...

This paper investigates the impact of hedging activities on U.S. export pricing. A theoretical framework of export pricing model with a hedging component was derived to test the hypothesis via exchange rate pass-through. The hypothesis is that a firm with a high (low) hedging engagement would have a low (normal) degree of exchange rate pass-through, ceteris paribus. Two measurements of the hedg...

Two related bet-hedging hypotheses have been proposed to explain the evolution of multiple mating by females. The first examines fitness of females within a single type of environment, and predicts that multiple mating can increase fitness by reducing the probability that all of a female’s eggs are fertilized by a poor-quality male. The second examines fitness across environments and predicts t...

Effective hedging strategies for variable annuities are crucial for insurance companies in preventing potentially large losses. We consider discrete hedging of options embedded in guarantees with ratchet features, under both equity (including jump) risk and interest rate risk. Since discrete hedging and the underlying model considered lead to an incomplete market, we compute hedging strategies ...

Electricity industries worldwide have been restructured in order to introduce competition.As a result, decisionmakers are exposed to volatile electricity prices, which are positively correlated with those of natural gas in markets with price-setting gas-fired power plants. Consequently, gas-fired plants are said to enjoy a “natural hedge.” We explore the properties of such a built-in hedge for ...

Eggs of Aedes triseriatus mosquitoes are stimulated to hatch when inundated with water, but only a small fraction of eggs from the same batch will hatch for any given stimulus. Similar hatching or germination patterns are observed in desert plants, copepods, rotifers, insects, and many other species. Bet hedging theory suggests that parents stagger offspring emergence into vulnerable life histo...

The purpose of this paper is to investigate the use of Principal Component Analysis in finding the efficient subset of underlying assets for hedging European basket options. This asset selection technique can be used together with other hedging strategies to enhance the hedging performance. Meanwhile, it become practical and essential when some of the underlying assets are illiquid or even not ...

We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a...

This paper uses a principal-agent model to study the interaction between hedging and earnings management. Hedging makes earnings management more difficult and they appear to be strategic substitutes in this model, which is both consistent with existing empirical evidence and provides a new explanation for that evidence. If hedging decision is contractible, hedging is efficient since it reduces ...

This paper examines the effects of hedging activities and executive compensation on firm value by incorporating the endogenous relationship between the two managerial decisions for a sample of U.S. oil and gas producers. Theories of hedging based on market imperfections imply that hedging should increase market value of firms. Likewise, the design of executive risk-incentive compensation is to ...