The growing volume utilization of hedging instruments in emerging markets revives the debate regarding optimal hedging strategies–futures versus put options. Specifically, market perfection and the question of redundancy of the hedging instruments, i.e., commodity put options versus futures becomes extremely relevant. This study analyzes optimal hedging while crucially differentiating the principal-agent entities and preferences, and considering managerial equity-linked compensation. We demonstrate that, within the separation theorems frameworks, perfect substitution between commodity put options and exclusive futures hedging. Furthermore, the analysis validates multiple hedging instruments combinations, thereby rationalizing hedging devices diversity and volume for the sake of emerging markets stability.
Bibliographical notePublisher Copyright:
© 2019 Elsevier B.V.
- Corporate hedging devices
- agency friction
- managerial compensation scheme
- separation theorems
ASJC Scopus subject areas
- Business and International Management
- Economics and Econometrics