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Udo Broll and Jack E. Wahl
 
''Optimal hedge ratio and elasticity of risk aversion''
( 2004, Vol. 6 No.5 )
 
 
We apply the mean-standard deviation paradigm to examine a widely used model of the hedging literature. As the hedging model satisfies a scale and location condition the mean-standard deviation technique provides more intuition for the revision of the firm's optimum risk taking when price volatility changes. By introducing risk aversion elasticity we describe the interaction of price risk and optimum hedge. We show that with unit risk aversion elasticity optimum hedge ratio is invariant to changes in price volatilities.
 
 
Keywords: elasticity of risk aversion
JEL: F3 - International Finance: General
D2 - Production and Organizations: General
 
Manuscript Received : Jun 09 2004 Manuscript Accepted : Jun 09 2004

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