Microeconomic Risk Management and Macroeconomic Stability

1. Front Matter

   Pages i-xv

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2. Preliminary Explorations

   1. Front Matter

      Pages 1-1

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   2. Introduction

      • Andreas Röthig

      Pages 3-11

3. A Micro View: Optimal Risk Management

   1. Front Matter

      Pages 14-14

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   2. Backwardation and Optimal Hedging Demand in an Expected Utility Hedging Model

      • Andreas Röthig

      Pages 15-30

   3. Mean-Variance Versus Minimum-Variance Hedging

      • Andreas Röthig

      Pages 31-48

4. A Macro View: Economic Stability

   1. Front Matter

      Pages 50-50

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   2. Corporate Risk Management in Balance-Sheet Triggered Currency Crises

      • Andreas Röthig

      Pages 51-86

   3. Arbitrage Pressure, Positive Feedback Speculation, Selective Hedging, and Economic Stability: An Empirical Analysis and Catastrophe Modelling

      • Andreas Röthig

      Pages 87-119

   4. Conclusions

      • Andreas Röthig

      Pages 121-123

5. Back Matter

   Pages 125-144

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“The essence of a hedging contract is a coincident purchase and sale in two markets which are expected to behave in such a way that any loss realized in one will be offset by an equivalent gain in the other. If such behavior follows a perfect hedge has been effected. ” Hardy and Lyon (1923, p. 276). 1. 1 LiteratureReviewandMotivation In the traditional hedging literature, the two markets in which hedgers trade are spot and futures markets. The trader’s position in the spot market is generally considered as given. According to Johnson (1960), hedging can be meaningfully de?ned only if the spot market is regarded as the trader’s primary market. The futures market is used solely to counterbalance an existing position in the spot market. Speculators, in contrast, do not have a commitment in the spot market. They take on risk in futures markets in order to pro?t from expected price changes. The hedger synchronizes his trading activities in spot and futures markets in order to reduce spot risk. In the lit- ature this approach to hedging is labeled risk reduction concept. Risk reduction will be achieved if spot and futures prices move more or less in parallel. If prices are p- fectly correlated, risk is abolished, since losses in one market are perfectly offset by pro?ts in the other market. However, as Hardy and Lyon (1923) point out, any div- gence from perfect correlation results in an imperfect hedge.

• Arbitrage
• Currency Crises
• Economic Stability
• Futures Markets
• Hedging
• Hedging and Risk Management
• Speculation

• FB 1 Institut Volkswirtschaftslehre, TU Darmstadt, Darmstadt, Germany

  Andreas Röthig

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