Abstract
Hedging is the purchasing of an asset or portfolio of assets in order to insure against wealth fluctuations from other sources. A hedge portfolio is any asset or collection of assets purchased by one or more agents for hedging. A grain dealer may hedge against losses on an inventory of grain by selling grain futures; a Middle Eastern businessman may hedge against political turmoil (and the resulting losses) by buying gold; a pension fund may hedge against capital losses on its equity portfolio by buying stock index put options.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Bibliography
Arrow, K.J. 1964. The role of securities in the optimal allocation of risk-bearing. Review of Economic Studies 31, 91–6.
Breeden, D.T. 1979. An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 7(3), 265–96.
Breeden, D.T. 1984. Futures markets and commodity options: hedging and optimality in incomplete markets. Journal of Economic Theory 32, 275– 300.
Brennan, M.J. 1958. The supply of storage. American Economic Review 48, 50–72.
Cootner, P.H. 1967. Speculation and hedging. Food Research Institute Studies, Supplement to Volume 7, 65–105.
Duffle, D. and Huang, C. 1985. Implementing Arrow—Debreu equilibria by continuous trading of a few long-lived securities. Econometrica 53, 1337–56.
Glosten, L. and Milgrom, P.R. 1985. Bid, ask, and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics 14, 71–100.
Grauer, F.L. and Litzenberger, R.H. 1979. The pricing of nominal bonds and commodity futures contracts under uncertainty. Journal of Finance 34, 69–84.
Gray, R.W. 1961. The search for a risk premium. Journal of Political Economy 69, 250–60.
Grossman, S. 1976. On the efficiency of competitive stock markets when traders have diverse information. Journal of Finance 31, 573–85.
Hoffman, G.W. 1954. Past and present theory regarding futures trading. Journal of Farm Economics 19, 1–11.
Houthakker, H.S. 1957. Can speculators forecast prices? Review of Economics and Statistics 39, 143–52.
Keynes, J.M. 1930. A Treatise of Money. Volume II: The Applied Theory of Money. London: Macmillan. Reprinted in The Collected Writings of John Maynard Keynes, London: Macmillan, New York: St. Martin’s Press, 1971.
Kyle, A.S. 1984. Market structure, information, futures markets, and price formation. In International Agricultural Trade: Advanced Readings in Price Formation, Market Structure, and Price Instability, ed. G. Storey, A. Schmitz and A. Sarris, London: Westview.
Leland, H. 1980. Who should buy portfolio insurance. Journal of Finance 35, 581–94.
Malinvaud, E. 1972. The allocation of individual risk in large markets. Journal of Economic Theory 4, 312–28.
Merton, R.C. 1973. An intertemporal capital asset pricing model. Econometrica 41, 867–87.
Milgrom, P. and Stokey, N. 1982. Information, trade and common knowledge. Journal of Economic Theory 26, 17–27.
Working, H. 1953a. Futures trading and hedging. American Economic Review 43, 314–43.
Working, H. 1953b. Hedging reconsidered. Journal of Farm Economics 35, 544–61.
Working, H. 1967. Tests of a theory concerning floor trading on commodity exchanges. Food Research Institute Studies, Supplement to Volume 7, 5–48.
Editor information
Copyright information
© 1989 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Connor, G. (1989). Hedging. In: Eatwell, J., Milgate, M., Newman, P. (eds) Finance. The New Palgrave. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-20213-3_18
Download citation
DOI: https://doi.org/10.1007/978-1-349-20213-3_18
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-0-333-49535-3
Online ISBN: 978-1-349-20213-3
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)