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Optimal Hedging under Forward-Looking Behavior
CARD Working Papers
  • Sergio H. Lence, Iowa State University
  • Dermot J. Hayes, Iowa State University
Publication Date
Series Number
93-WP 108
The study focuses on the production and hedging behavior of forward-looking risk-averse competitive firms. It is shown that there is separation between production and hedging. Optimal production for a forward-looking firm is identical to that of an otherwise equivalent myopic firm. However, the optimal forward-looking hedge differs from the optimal myopic hedge. If forward prices are unbiased, full hedging is suboptimal when the firm is forward-looking and output and material input prices are contemporaneously related. Furthermore, under certain conditions, the optimal forward-looking hedge under unbiased forward prices is strictly smaller than the full hedge.
Publication Information

This working paper was published as Lence, Sergio H. and Dermot J. Hayes, "Optimal Hedging Under Forward-Looking Behaviour," Economic Record 71 (1995): 329–342, doi:10.1111/j.1475-4932.1995.tb02678.x.

Citation Information
Sergio H. Lence and Dermot J. Hayes. "Optimal Hedging under Forward-Looking Behavior" (1993)
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