Érudit | Dépôt de documents >
CIRPÉE - Centre interuniversitaire sur le risque, les politiques économiques et l'emploi >
Cahiers de recherche du CIRPÉE >

Please use this identifier to cite or link to this item:

Title: Production Flexibility and Hedging
Authors: Dionne, Georges
Santugini, Marc
Keywords: Hedging
Issue Date: 2014-04
Series/Report no.: Cahiers du CIRPÉE;14-17
Abstract: A risk-averse firm faces uncertainty about the spot price of the output, but has access to a futures market. The technology requires both capital and labor to produce the output. Due to the presence of flexibility in production, the level of capital and the volume of futures contracts are chosen under uncertainty (i.e., prior to observing the realized spot price) whereas the level of labor is set under certainty (i.e., after observing the realized spot price). When there is flexibility in production, the optimal production decisions are different between a risk-neutral firm and a risk-averse firm, i.e., the separation result does not hold. Moreover, flexibility in production implies only partial hedging with an actuarially fair futures price, i.e., the full-hedging result does not hold.
Appears in Collections:Cahiers de recherche du CIRPÉE

Files in This Item:

CIRPEE14-17.pdf, (Adobe PDF ; 132.46 kB)

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.


About Érudit | Subscriptions | RSS | Terms of Use | Contact us |

Consortium Érudit ©  2016