Futures Hedging Under Disappointment Aversion | Zendy

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Futures Hedging Under Disappointment Aversion

Author(s) -

Lien Donald

Publication year - 2001

Publication title -

journal of futures markets

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.88

H-Index - 55

eISSN - 1096-9934

pISSN - 0270-7314

DOI - 10.1002/fut.2103

Subject(s) - disappointment , futures contract , hedge , economics , position (finance) , risk aversion (psychology) , financial economics , microeconomics , expected utility hypothesis , psychology , finance , social psychology , ecology , biology

This article considers optimal futures hedging decisions when the hedger is disappointment‐averse(Gul, 1991). When the futures contract is a perfect hedge instrument, a disappointment‐aversehedger always holds a position closer to the full hedge than a nondisappointment‐averse hedger. In thepresence of basis risk, the optimal futures position is either a partial hedge or a full hedge. Neither Texashedge nor overhedge could be optimal. The effects of different degrees of disappointment aversion on futurestrading are also analyzed. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1029–1042, 2001

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