E. Briys and M. Crouhy are from the Finance Department, Centre HEC-ISA in Jouy-en-Josas, France. H. Schlesinger is from the Finance Department, University of Alabama, and is a research fellow at the Wissenschaftzentrum in Berlin, West Germany. The authors are grateful for helpful comments from Phelim Boyle, Doug Breeden, Jean Pierre Danthine, Eddie Duett, Bernard Dumas, S. Scott MacDonald, Dan Pieptea, Steve Ross, Denis Talay, and an anonymous referee. The usual caveat applies.
Optimal Hedging under Intertemporally Dependent Preferences
Article first published online: 30 APR 2012
1990 The American Finance Association
The Journal of Finance
Volume 45, Issue 4, pages 1315–1324, September 1990
How to Cite
BRIYS, E., CROUHY, M. and SCHLESINGER, H. (1990), Optimal Hedging under Intertemporally Dependent Preferences. The Journal of Finance, 45: 1315–1324. doi: 10.1111/j.1540-6261.1990.tb02440.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper examines optimal hedging behavior in a market where preferences for current consumption are partly determined by the consumer's past consumption history. The model considers an individual exposed to price risk, who allocates wealth between consumption and futures contracts over a (continuous-time) finite planning horizon. The speculative component of the hedge ratio is shown to be smaller and the consumption path smoother than in models where preferences are separable over time. Some comparative-static properties of the hedge ratio are also examined.