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Dynamic Hedging Of Inflation Risk

Author

Listed:
  • UDO BROLL

    (Department of Business Management and Economics, Technische Universität Dresden, Helmholzstr. 10, 01062 Dresden, Germany)

  • STEFAN SCHUBERT

    (Department of Economics, Free University of Bozen-Bolzano, Italy)

Abstract

National and international investors are exposed to risk, stemming from volatile asset prices and inflation uncertainty. However investors can enter futures markets to hedge against these risks. The paper develops a dynamic hedging model, where the evolution of asset price, price level and futures price and hence real wealth is stochastic. For a risk averse investor, optimal dynamic consumption and hedging strategy are derived and discussed.

Suggested Citation

  • Udo Broll & Stefan Schubert, 2009. "Dynamic Hedging Of Inflation Risk," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 1-13.
    • Handle: RePEc:wsi:afexxx:v:05:y:2009:i:01:n:s2010495209500031
    DOI: 10.1142/S2010495209500031
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    More about this item

    Keywords

    Inflation risk; consumption; asset price; dynamic hedging; E21; E31;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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