RT Journal Article
SR Electronic
T1 Price Hedging with Local and Aggregate Quantity Risk
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 49
OP 69
DO 10.3905/jod.2005.605355
VO 13
IS 2
A1 Jouahn Nam
A1 Alan L. Tucker
A1 Jason Z Wei
YR 2005
UL https://pm-research.com/content/13/2/49.abstract
AB The authors present a method to minimize Value–at–Risk where price, local quantity, and aggregate quantity are all stochastic and correlated. The framework is quite general in that it accommodates both local and aggregate quantity, and the quantity variable may be for an asset that is subject to a stochastic convenience yield. The framework is more general than that of Ahn et al. [1999]. The solution identifies an optimal strike price for a quantity–triggered put option used to minimize Value–at–Risk. The authors identify situations where this put option is more effective than its plain–vanilla counterpart in reducing both price and quantity risks.