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By Andreas Röthig

While the determinants of businesses’ optimum hedging suggestions at the micro point are good understood, there's infrequently any literature facing macroeconomic results of microeconomic chance administration. This booklet is worried with the impression of various hedging rules on macroeconomic balance. It addresses this factor by means of making use of theoretical in addition to empirical equipment.

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Example text

If e˜1 = f˜1 ). However, aside from basis risk, the model framework is quite different, since the analysis in this chapter is based on the meanvariance concept. 1 On the contrary, mean-variance models have several attractive properties that may add additional insights. One of these attractive properties is that the impact of risk aversion on the importer’s optimal hedging strategy can be modeled explicitly. , Battermann, Broll, and Wahl (2002) and Broll, Wahl, and Wong (2006). A. 1007/978-3-642-01565-6 3, c Springer-Verlag Berlin Heidelberg 2009 31 32 3 Mean-Variance Versus Minimum-Variance Hedging chapter, can be modeled in more detail.

Using this method and price data, it is possible to quantify these effects without the necessity of defining the firm’s utility function. In addition, the effect of risk aversion can be modeled in detail. Hence, this approach offers diverse insights into the individual firm’s characteristics and attitudes towards risk, price expectations, and costs. Second, the optimal hedge ratio can be decomposed into the pure hedge component and the speculative component. It is in fact very important and interesting 48 3 Mean-Variance Versus Minimum-Variance Hedging to differentiate between these two components, since the speculative component is unique for each individual firm, while the pure hedge component is the same for all firms.

1007/978-3-642-01565-6 3, c Springer-Verlag Berlin Heidelberg 2009 31 32 3 Mean-Variance Versus Minimum-Variance Hedging chapter, can be modeled in more detail. In this chapter, the impact of risk aversion, hedging costs and backwardation on the optimal hedging strategy are investigated empirically by applying data for the Australian Dollar (AUD), Canadian Dollar (CAD), Swiss Francs (CHF), Euro (EUR), Japanese Yen (JPY), and Mexican Peso (MXP) futures contracts to the model. Another interesting property of this modeling approach is that the derived optimal hedge ratio can be analyzed in more detail.

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