Operational Flexibility and Financial Hedging: Complements or Substitutes?

@article{Chod2010OperationalFA,
  title={Operational Flexibility and Financial Hedging: Complements or Substitutes?},
  author={Jiri Chod and Nils Rudi and Jan A. Van Mieghem},
  journal={Management Science},
  year={2010},
  volume={56},
  pages={1030-1045}
}
W consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability. Whereas mismatch risk can be mitigated with greater operational flexibility, profit variability can be reduced through financial hedging. We show that the relationship between these two risk mitigating strategies depends on the type of flexibility: Product flexibility and financial hedging tend to be complements… CONTINUE READING
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