This study purposes to examine how optimal hedging is determined against
the uncertainty of real revenue when there exist tradable risk of asset price and
exchange as well as untradable inflation risk at a time. In particular, when
inflation shows a dynamic relationship between asset price and exchange rate,
the real revenue schedule would be nonlinear to risk of asset price and
exchange rate. Optimal combination hedge using short futures and long put is
required to hedge against this nonlinear revenue schedule corresponding to
asset price risk or exchange risk. Also a dynamic hedging strategy is analyzed
for a dynamic relationship between inflation, asset price and exchange rate.