Relaxing standard hedging assumptions in the presence of downside risk

Fabio Mattos, Philip Garcia, Carl Nelson

Research output: Contribution to journalArticlepeer-review


We analyze how the introduction of a downside risk measure and less restrictive assumptions in the standard hedging problem changes the optimal hedge and the opportunity costs of not hedging. Based on a dataset of futures and cash returns for soybeans and S&P 500 returns, the findings indicate that the optimal hedge changes considerably when a one-sided risk measure is adopted and standard assumptions are relaxed. Further, the results suggest that in a downside risk framework with realistic hedging assumptions there is little or no incentive for producers to hedge as the opportunity cost of not hedging is small.

Original languageEnglish (US)
Pages (from-to)78-93
Number of pages16
JournalQuarterly Review of Economics and Finance
Issue number1
StatePublished - Feb 2008


  • Downside risk
  • Futures markets
  • Hedging

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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