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| Author: | Lien, D. Shaffer, D. R. |
| Title: | Hedging Multiperiod Forward Commitments: The Case of Period-by-Period Quantity Uncertainty |
| Journal: | Review of Quantitative Finance and Accounting
2001 : MAR, VOL. 16:2, p. 171-181 |
| Index terms: | FINANCE HEDGING ANALYTICAL REVIEW UNCERTAINTY |
| Language: | eng |
| Abstract: | This article considers the hedging problem of a producer with a long-term forward commitment to deliver a commodity at multiple future points in time. The aggregate quantity to be delivered over time is known with certainty; however, the period-by-period quantity is determined by the customer and is unknown to the producer. A minimum-variance multiperiod futures position that considers both price uncertainty and period- by-period quantity uncertainty is derived. The following results are obtained: The individual effects of price uncertainty and quantity uncertainty on the multiperiod minimum-variance are separable. |
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