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Integrated production and risk hedging with financial instruments

Haksöz, Çağrı and Seshadri, Sridhar (2011) Integrated production and risk hedging with financial instruments. In: Kouvelis, Panos and Dong, Lingxiu and Boyabatlı, Onur and Li , Rong, (eds.) Handbook of Integrated Risk Management in Global Supply Chains. John Wiley & Sons, USA, pp. 157-197. ISBN 9780470535127

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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. We then focus on a procurement problem for a risk neutral commodity producer who sells to its buyer (with a stochastic demand) via a long-term fixed-price contract, and trades intelligently in the spot market for the commodity. 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:Book Section / Chapter
Uncontrolled Keywords:Risk management, risk hedging, financial instruments, forwards, futures, options, production, stochastic control, spot markets, price/basis/yield risks
Subjects:H Social Sciences > HD Industries. Land use. Labor > HD0061 Risk Management
T Technology > TS Manufactures > TS0155-194 Production management. Operations management
H Social Sciences > HG Finance > HG176.6 Financial engineering
ID Code:17374
Deposited By:Çağrı Haksöz
Deposited On:03 Nov 2011 11:10
Last Modified:03 Nov 2011 11:10

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