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 ...

It has often been argued that there exists an underlying biological basis of utility functions. Taking this line of argument a step further in this paper, we have aimed to computationally demonstrate the biological basis of the Black-Scholes functional form as applied to classical option pricing and hedging theory. The evolutionary optimality of the classical Black-Scholes function has been com...

We present the pricing and hedging method for options with general payoffs in the presence of transaction costs. The convexity of the payoff function gamma of the options is an important issue under transaction costs. When the payoff function is convex, Leland-style pricing and hedging method still works. However, if the payoff function is of general form, additional assumptions on the size of ...

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 ...

Hedging academic claims has been recognized as one of integral pragmatic features of academic writing in which most EFL academic writers seem to face substantial problems. Explicit instruction has been proposed by some scholars as an effective approach to make EFL writers aware of the importance, different forms, and pragmatic functions of hedging devices some of which are polysemous and polypr...

H igh price volatility and the risk are the main features of commodity markets. One way to reduce this risk is to apply the hedging policy by future contracts. In this regard, in this paper, we will calculate the optimal hedging ratios for OPEC oil. In this study, besides the multivariate GARCH models, for the first time we use conditional copula models for modelling dependence struc...

In this paper we propose a general framework for modeling an insurance liability cash flow in continuous time, by generalizing the reduced-form credit risk and life insurance. particular, assume nontrivial dependence structure between reference filtration internal filtration. We apply these results pricing hedging non-life liabilities hybrid financial markets, while taking into account role of ...

The seller of a contingent claim H can always find a self-financing investment strategy that (super)hedges the claim H. When the seller wants to endow an initial capital x less than the one required to get perfect (super)hedging, the shortfall risk minimisation problem arises in a natural way. The aim is to find the strategy that minimises E{`([H(ST )−V x,φ T ])} (shortfall risk), where V x,φ t...