Optimal Control and Hedging of Operations in the Presence of Financial Markets

Authors:
René Caldentey;Martin Haugh
Affiliations:
Stern School of Business, New York University, 44 West Fourth Street, New York, New York 10012;Department of Industrial Engineering and Operations Research, Columbia University, 331 S.W. Mudd Building, 500 West 120th Street, New York, New York 10027-6902
Venue:
Mathematics of Operations Research
Year:
2006

Citing 5
Cited 9

Optimal portfolio and consumption decisions for a “small investor” on a finite horizon

SIAM Journal on Control and Optimization
The risk-averse (and prudent) newsboy

Management Science
Valuing risky projects: option pricing theory and decision analysis

Management Science
Hedging Derivative Securities and Incomplete Markets: An e-Arbitrage Approach

Operations Research
Hedging Inventory Risk Through Market Instruments

Manufacturing & Service Operations Management

Revenue Management of a Make-to-Stock Queue

Operations Research
Equilibrium Forward Contracts on Nonstorable Commodities in the Presence of Market Power

Operations Research
On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks

Management Science
Supply Contracts with Financial Hedging

Operations Research
Operational Flexibility and Financial Hedging: Complements or Substitutes?

Management Science
On the Pricing of Natural Gas Pipeline Capacity

Manufacturing & Service Operations Management
Optimal Inventory Policies when Purchase Price and Demand Are Stochastic

Operations Research
A Computational Approach to the Real Option Management of Network Contracts for Natural Gas Pipeline Transport Capacity

Manufacturing & Service Operations Management
Managing Storable Commodity Risks: The Role of Inventory and Financial Hedge

Manufacturing & Service Operations Management

Quantified Score

Hi-index	0.00

Visualization

Abstract

We consider the problem of dynamically hedging the profits of a corporation when these profits are correlated with returns in the financial markets. In particular, we consider the general problem of simultaneously optimizing over both the operating policy and the hedging strategy of the corporation. We discuss how different informational assumptions give rise to different types of hedging and solution techniques. Finally, we solve some problems commonly encountered in operations management to demonstrate the methodology.