Wharton Research Scholars Journal

Document Type

Journal Article

Date of this Version

4-1-2004

Abstract

This paper considers the optimization of a hedging portfolio subject to a Value-at-Risk (VaR) constraint (about corporate profits) that can be used by a company such as Anheuser-Busch to eliminate exposure to commodity prices. The model built along with this research study simulates hedging costs associated with various hedging portfolios consisting of financial derivatives on aluminum including options, futures, and futures and options. The results for an efficient hedging portfolio are then integrated with Anheuser-Busch’s utility preferences to map out the optimal portfolio that the company can use to hedge its exposure. The simulation model built for this exercise also allows the hedger to simulate other strategies that may have a different objective than the one outlined in this study.

Karanjit_Singh_Simulation_Model.pdf (18 kB)
Simulation Model

 

Date Posted: 29 September 2006

This document has been peer reviewed.