Department of Agricultural and Resource Economics
Methods for Selecting the Optimal Dynamic Hedge When Production is Stochastic
- Author(s): Karp, Larry
- et al.
A dynamic hedging problem with stochastic production is 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 analysis enables the hedger to select his appropriate level of risk aversion.