%0 Journal Article
%T Optimal Foreign Exchange Risk Hedging: Closed Form Solutions Maximizing Leontief Utility Function
%A Yun-Yeong Kim
%J Theoretical Economics Letters
%P 2893-2913
%@ 2162-2086
%D 2018
%I Scientific Research Publishing
%R 10.4236/tel.2018.814181
%X In this paper, we extend Kim (2013)</span><span style=\"font-family:Verdana;\">&nbsp;</span><span style=\"font-family:&quot;\"><span style=\"font-family:Verdana;\">for the optimal foreign exchange (FX) risk hedging
solution to the multiple FX rates and suggest its application method. First,
the generalized optimal hedging method of selling/buying of multiple foreign
currencies is introduced. Second, the cost of handling forward contracts is
included. Third, as a criterion of hedging performance evaluation, there is
consideration of the Leontief utility function, which represents the risk
averseness of a hedger. Fourth, specific steps are introduced about what is needed
to proceed with hedging. There is a computation of the weighting ratios of the
optimal combinations of three conventional hedging vehicles, </span><i><span style=\"font-family:Verdana;\">i.e.</span></i><span style=\"font-family:Verdana;\">, call/put currency options, forward
contracts, and leaving the position open. The closed form solution of
mathematical optimization may achieve a lower level of foreign exchange risk for
a specified level of expected return. Furthermore, there is also a suggestion provided
about a procedure that may be conducted in the business fields by means of Excel.
%K Foreign Exchange
%K Risk
%K Optimal Hedging
%K Closed Form Solution
%U http://www.scirp.org/journal/PaperInformation.aspx?PaperID=87878