Hedging Time-Varying Downside Risk
One of the major functions of derivative instruments is risk reduction. A long-standing tradition in the finance literature treated the risk with a two-sided notion. Standard deviation or variance are employed to measure risk. A recent survey by Adams and Montesi (1995), however, indicated that corporate managers are more concerned with variability in losses but not so much with variability in gains. This finding is consistent with Mao (1970). One may name the former variability downside risk and the latter upside potential (Lee and Rao, 1988).
Journal of Futures Markets
TSE, Yiu Kuen and Lien, Donald.
Hedging Time-Varying Downside Risk. (1998). Journal of Futures Markets. 18, (1), 705-722. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/259