The optimal derivative-based corporate hedging strategies under equity-linked managerial compensation

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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.

Original languageAmerican English
Article number100631
JournalEmerging Markets Review
StatePublished - Dec 2019


  • Corporate hedging devices
  • agency friction
  • managerial compensation scheme
  • separation theorems

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Economics and Econometrics


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