Review of Economic Studies Vol. 50 No. 2 1983
The Time Pattern of Hedging and the Volatility of Futures Prices
Abstract
The paper proposes a multi-period model of hedging which allows for a futures position to be revised within the cash market holding period. Within this framework, we assess the robustness of the two-period theory of hedging when generalized to many periods. We characterize the normal time path of a hedge and the way it is affected by the requirement that futures accounts “mark to market” daily. Finally we show how the resolution of production uncertainty over time affects hedging behavior and determines the volatility of futures prices.
- DOI
- 10.2307/2297415
- Volume
- 50
- Issue
- 2
- Pages
- 249
- Sources
- openalex crossref