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Integrated production and risk hedging with financial instruments

Haksöz, Çağrı and Seshadri, Sridhar (2009) Integrated production and risk hedging with financial instruments. [Working Paper / Technical Report] Sabanci University ID:SU_FMAN_2009/0003

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Abstract

We review the existing literature on integrated production and risk hedging with forwards/futures and options for a risk averse firm in single and multi period settings. We illustrate the value of hedging joint price, basis, and yield risks using forwards/futures and options. Then, we analyze the procurement problem of a risk neutral commodity producer who sells via a long-term fixed-price contract, fulfilling buyer's stochastic demand and intelligently trading in the spot market. We solve a continuous time, infinite horizon stochastic control problem in order to determine the optimal policy for production and spot market trading.

Item Type:Working Paper / Technical Report
Subjects:H Social Sciences > HD Industries. Land use. Labor > HD0061 Risk Management
T Technology > T Technology (General) > T055.4-60.8 Industrial engineering. Management engineering > T57.6-57.97 Operations research. Systems analysis
H Social Sciences > HF Commerce > HF4999.2-6182 Business
H Social Sciences > HG Finance > HG176.6 Financial engineering
T Technology > TS Manufactures > TS0155-194 Production management. Operations management
ID Code:11925
Deposited By:Çağrı Haksöz
Deposited On:10 Sep 2009 11:21
Last Modified:03 Feb 2010 11:35

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