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An optimal Strategy for Hedging with Short-Term Futures Contracts
Authors:G Larcher  G Leobacher
Institution:1.Institut für Analysis, Universität Linz, Austria
Abstract:The search for an optimal strategy to reduce the running risk in hedging a long-term supply commitment with short-dated futures contracts leads to a class of intrinsic optimization problems. We give an explicit analytic solution for this optimization problem if the market price of the commodity is based on a simple Gaussian model, thereby replacing previously used incomplete approximations to the optimal strategy.
Keywords:hedging with futures contracts  exact optimization  optimal hedging strategy
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