| Article ID: | iaor20041420 |
| Country: | United Kingdom |
| Volume: | 13 |
| Issue: | 2 |
| Start Page Number: | 331 |
| End Page Number: | 344 |
| Publication Date: | Jun 2003 |
| Journal: | Mathematical Finance |
| Authors: | Larcher G., Leobacher G. |
| Keywords: | investment |
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.