értekezés - Budapesti Corvinus Egyetem

His comparative statics results suggest that the impact of collateral requirements on an
optimal hedging policy is negligible for firms with low credit spreads, high risk-aversion,
and high average production costs. This statement holds true if we consider only the hedge
ratio, but needs not be true if we look at the absolute amount of forward contracts. It is due
to the fact that, as Korn [2003] shows, the effects of collateral requirements on the optimal
output level (production decision) can be particularly strong if expected profit margins are
small and price volatility is high (risky business). In an environment like that, a natural
hedging strategy is to cut production, and consequently the absolute size of forward
contracts. 166
166 Korn [2003] also analyses how the given liquidity risk itself could be hedged in order to improve the
overall performance of a risk management strategy. He considers ATM call options on forwards that expire
when forwards are revalued. For any short position in forwards an appropriate long position in such call
options can eliminate liquidity risk completely. In this case, the firm essentially holds long positions in put
options on the forward. He shows that although it may be optimal to hold long positions in options, the
maximum hedge ratio is rather low due to the liquidity costs the option contract entails.
167