Adam-Müller, Axel F.A. and Nolte, Ingmar (2011) Cross hedging under multiplicative basis risk. Journal of Banking & Finance, Vol.35 (No.11). pp. 2956-2964. doi:10.1016/j.jbankfin.2011.03.022 ISSN 0378-4266.

Research output not available from this repository.

Request-a-Copy directly from author or use local Library Get it For Me service.

Request Changes to record.

Abstract

Cross hedging price risk in an incomplete financial market creates basis risk. We propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way. Under this specification, positive prudence is a necessary and sufficient condition for underhedging in an unbiased market. Using the example of cross hedging jet fuel price risk with crude oil futures, we show that the new specification is superior in describing the price series and that optimal cross hedges differ significantly from those derived under the traditional additive cross hedging model. (C) 2011 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Banking & Finance
Publisher:	Elsevier Science BV
ISSN:	0378-4266
Official Date:	2011
Dates:	Date Event 2011 Published
Volume:	Vol.35
Number:	No.11
Number of Pages:	9
Page Range:	pp. 2956-2964
DOI:	10.1016/j.jbankfin.2011.03.022
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

Data sourced from Thomson Reuters' Web of Knowledge

Request changes or add full text files to a record

Repository staff actions (login required)

View Item