This paper studies a Cournot duopoly in international trade so that the firms are exposed to exchange rate risk. A hedging opportunity is introduced by a forward market where the foreign currency can be traded on. We investigate two settings: First we assume that hedging and output decisions are...

We derive a class of utility functions that are equivalent with respect to a well-defined functional form. We apply a general view of constant relative risk aversion to investigate on different equivalence relations. Then we compare our results with standard applications in economics and finance.

In this paper we challenge basic results of signaling models. In our banking model each project of a borrower is described by a continuous density of outcomes. Different density functions are classified according to second stochastisch dominance. Combining these features we find that in a...

Given that a multinational enterprise can react flexibly upon exchange rate movements, international trade flows may be interpreted as an option. An enterprise will opt to export if the profits obtained from exporting under given exchange rate developments are greater than if foreign subsidiary...

Credit risk is one of the most important forms of risk faced by national and international banks as financial intermediaries. Managing this kind of risk through selecting and monitoring corporate and sovereign borrowers and through creating a diversified loan portfolio has always been one of the...

The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the...

Within the prospect theory the paper examines production and hedging decisions of a competitive firm under price uncertainty. We consider the prospect theory for the firm's utility function in the two moment model known as (mu,sigma)-preference. In contrast to the literature our findings show...