Optimal hedging strategies decrease in response to basis risk.
The article explores how to make decisions about production and hedging when there is a risk involved. The researchers found that when there is basis risk, the best choices for hedging and output decrease. They also discovered that the ratio of hedging to output is affected by basis risk, which is an important factor to consider. The study builds on previous work by using a more general approach and showing the impact of basis risk on this ratio.