By bridging studies in cross hedging and background risk, this paper makes two contributions. Firstly, given a general … basis risk specification accommodating full, under and over hedge, it is shown that the optimality condition for the full … hedge only includes signing appropriate derivatives of the basis risk specification function and existing additive and …

reduction (self-protection) so that correlation becomes endogenous. If prevention concerns only one risk, introducing a second … exogenous risk increases the level of prevention expenditures, even if correlation is negative. If prevention expenditures may … increased dependence increases aggregate prevention expenditures, but not necessarily prevention expenditures for each risk due …