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.