This paper considers production and hedging decisions of firms under ambiguous price risk. We display that the separation property and the full hedging theorem hold in the presence of ambiguity. We also determine the condition that ambiguity aversion increases optimal hedging position

The disposition effect is one of the representative puzzles observed in the financial market. Several theoretical explanations for the disposition effect have been tried, but we cannot yet say that they have been successful. The seminal paper of Barberis and Xiong (2009), which tries to explain...