Corpus ID: 14948844

Corporate Hedging: What, Why and How?

@inproceedings{Ross1998CorporateHW,
  title={Corporate Hedging: What, Why and How?},
  author={M. Ross},
  year={1998}
}

M. Ross

Published 1998

Business

This paper explores the rationale for corporate risk management. Following Smith and Stulz (1985) and Mayers and Smith (1987), the assumption is made that firms can contractually commit to bondholders to maintain a particular risk management policy, or asset volatility. With that as a starting point, the essay derives the optimal hedge portfolio, examines this portfolio's robustness to variance-covariance misestimation, and proposes a new motive for corporate risk management; a firm that hedges… CONTINUE READING

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