Drought is an inevitable part of the world’s climate. It occurs in wet as well as in dry regions. Therefore, planning for drought and mitigating its impacts is essential. In this study, a hedging rule is developed using the zero/one mixed integer-programming approach. Furthermore, some procedures are introduced to ease the computational burden inherent in integer programming. Hedging rules are ...

In this paper, we consider the problem of mean-variance hedging in an incomplete market where the underlying assets are jump diffusion processes which are driven by Brownian motion and doubly stochastic Poisson processes. This problem is formulated as a stochastic control problem and closed form expressions for the optimal hedging policy are obtained using methods from stochastic control and th...

We consider a failure-prone manufacturing system with bursty demand arrivals. We prove that the hedging-point policy is optimal for this problem and provide analytical expressions to compute the hedging point. This allows us to compare our exact results to approximations provided by diiusion limits and large deviations. We also show that our result leads to the solution for the constant demand ...

This paper derives optimal perfect hedging portfolios in the presence of transaction costs within the binomial model of stock returns, for a market maker that establishes bid and ask prices for American call options on stocks paying dividends prior to expiration. It is shown that, while the option holder's optimal exercise policy at the ex-dividend date varies according to the stock price, ther...

background: several reservoir systems have been constructed for hydropower generation around the world. hydropower offers an economical source of electricity with reduce carbon emissions. therefore, it is such a clean and renewable source of energy. reservoirs that generate hydropower are typically operated with the goal of maximizing energy revenue. yet, reservoir systems are inefficiently ope...

In planning and managing production systems, manufacturers have two main strategies for responding to uncertainty: they build inventory to hedge against periods in which the production capacity is not suÆcient to satisfy demand, or they temporarily increase the production capacity by \purchasing" extra capacity. We consider the problem of minimizing the long-run average cost of holding inventor...

If a firm has information pertinent to its own dividend stream that is not made available to its shareholders, it may be in the interests of the firm and its shareholders to adopt a financial hedging policy. This is in contrast with the Modigliani-Miller Theorem, which implies that, with informational symmetry, such financial hedging is irrelevant. In certain cases, hedging policies are identif...

This paper addresses the optimization of the continuous-flow model of a single-stage single-product manufacturing system with constant demand and transportation delay from the machine to the inventory. The machine is subject to either time-dependent or operation-dependent failures. The production is controlled by a hedging point policy. The goal is to determine the optimal hedging point, which ...

This paper explores the merits of hedging stochastic input costs (i.e., reducing the risk of adverse changes in costs) in a decentralized, risk neutral supply chain. Specifically, we consider a generalized version of the well-known ‘selling-to-the-newsvendor’ model in which both the upstream and the downstream firms face stochastic input costs. The firms’ operations are intertwined – i.e., the ...

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 ...