Date: 26 September 2025, Friday
Time: 13.30 – 14.30
Place: MA-330
“Hedging Downstream: An Equilibrium View”
by
Hamed Ghoddusi
California Polytechnic State
Abstract
Downstream firms face demand and supply shocks but usually lack access to direct financial derivatives like forwards to hedge. As a result, they seek alternative strategies, such as cross-hedging and vertical integration. We offer an equilibrium framework to analyze the effectiveness of optimal hedging strategies for downstream firms.
Contrary to common belief, our friction-free linear model shows that financial hedging and vertical integration may offer limited hedging value due to the endogenous correlation of prices and spreads across the value chain. However, when frictions such as capacity constraints or multiple downstream markets are introduced, the hedging effectiveness increases as these factors weaken shock propagation and reduce the correlations between layers of the supply chain. We calibrate the theoretical model to examine quantitative implications. The paper presents a micro-founded model for making dynamic, forward-looking hedging decisions in environments where key variable relationships are subject to change.
Bio
Hamed Ghoddusi is an Associate Professor of Finance at the Orfalea College of Business, California Polytechnic State University. He holds degrees in Finance (PhD), Economics (Graduate), and Industrial Engineering (BSc). His main research is on the intersection of OM/Finance/Economics using micro-founded dynamic models of risk management and optimal investment, in domains such as energy, natural resources, and commodity markets. In particular, he is interested in the implications of aggregate industry equilibrium for optimal operational decisions.