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Methods for Selecting the Optimal Dynamic Hedge When Production is Stochastic
Author(s) -
Karp Larry S.
Publication year - 1987
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1241699
Subject(s) - production (economics) , hedge , revenue , mathematical optimization , risk aversion (psychology) , computer science , distribution (mathematics) , econometrics , economics , expected utility hypothesis , microeconomics , mathematical economics , mathematics , finance , ecology , mathematical analysis , biology
A dynamic hedging problem with stochastic production is formulated and solved. The optimal feedback rules recognize that future hedges will be chosen optimally based on the most current information. The resulting distribution of revenue is analyzed numerically. This information enables the analyst to select the risk aversion parameter that results in the preferred distribution of revenue.