Separation and hedging results with state-contingent production
Robert G. Chambers, John Quiggin, Australian National University. Faculty of Economics, Australian National University. Research School of Social Sciences
Faculty of Economics & Commerce and Economics Program, Research School of Social Sciences, Australian National University, 1995 - 35 pages
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arbitrage conditions Australian National University Ci(w commodity completely smoothes contingent markets contingent output Corollary 9 cross hedge derived Economic equations exist expected market price expected output expected utility expected value forward contract forward price futures contract futures markets GSC is satisfied HEDGING RESULTS Hence implies interior equilibrium interior solution intuition John Quiggin Lemma marginal cost marginal return margnal market is unbiased Moral Hazard necessary and sufficient optimal hedge Piyi price and production price risk price uncertainty Producer Behaviour producer chooses producer goes producer's production production and price production decisions production equilibrium production risk production uncertainty PY efficiency prices radial expansion Random Variables requires Result 13 risk preferences risk-averse individual risk-averse producers facing risk-neutral individual Robert G satisfies GSC second equality SEPARATION AND HEDGING separation result shadow probabilities single forward market spanning spot price state-contingent output vector stochastic Suppose unbiased forward market