Optimal Hedging with Quantity Uncertainty and Agency Problem

Futures traders usually face to the uncertainties of prices and trading quantities of the underlying commodities. The hedging decision is also affected by the agency condition in the trading process. This note works on the above issues by constructing the models with proper considerations. Empirical research is implemented by using the data of fuel oil futures from Shanghai futures exchange. It turns out that investors hold a more conservative hedging decision under price and quantity uncertainty, while the agents tend to make a more radical decision for their own interests.