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Dynamic optimal hedging with futures in portfolio context

Author

Listed:
  • Moustapha Pemy

    (Towson University [Towson, MD, United States] - University of Maryland System)

  • Jules Sadefo Kamdem

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

Abstract

We investigate the optimal hedging strategy in a continuous time framework that is more adequate for commodities. We consider the consumption-investment problem where all asset prices follow mean- reverting jump-diffusion processes. The optimal investment and con- sumption strategies are derived in closed form. The framework is used to address one of the major risk factors faced by commodity produc- ers. We show that a commodity producer will be better off hedging his/her futures contracts by simultaneously investing in foreign ex- change products to minimize the adverse impacts of the jump risk prevalent in commodity prices.

Suggested Citation

  • Moustapha Pemy & Jules Sadefo Kamdem, 2024. "Dynamic optimal hedging with futures in portfolio context," Post-Print hal-04591643, HAL.
    • Handle: RePEc:hal:journl:hal-04591643
    as

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