Optimal Hedging and Equilibrium in a Dynamic Futures Market PDF Download
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Author: Darrell Duffie
Publisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 17
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Book Description
Author: Darrell Duffie
Publisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 17
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Book Description
Author: Abraham Lioui
Publisher: Springer Science & Business Media
ISBN: 038724106X
Category : Business & Economics
Languages : en
Pages : 268
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Book Description
This book is an advanced text on the theory of forward and futures markets which aims at providing readers with a comprehensive knowledge of how prices are established and evolve in time, what optimal strategies one can expect the participants to follow, whether they pertain to arbitrage, speculation or hedging, what characterizes such markets and what major theoretical and practical differences distinguish futures from forward contracts. It should be of interest to students (MBAs majoring in finance with quantitative skills and PhDs in finance and financial economics), academics (both theoreticians and empiricists), practitioners, and regulators. Standard textbooks dealing with forward and futures markets generally focus on the description of the contracts, institutional details, and the effective (as opposed to theoretically optimal) use of these instruments by practitioners. The theoretical analysis is often reduced to the (undoubtedly important) cash-and-carry relationship and the computation of the simple, static, minimum variance hedge ratio. This book proposes an alternative approach of these markets from the perspective of dynamic asset allocation and asset pricing theory within an inter-temporal framework that is in line with what has been done many years ago for options markets.
Author: Su Dai
Publisher: GRIN Verlag
ISBN: 3656539219
Category : Business & Economics
Languages : en
Pages : 80
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Book Description
Master's Thesis from the year 2013 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,7, University of Mannheim, language: English, abstract: The commodity futures contract is an agreement to deliver a specific amount of commodity at a future time . There are usually choices of deliverable grades, delivery locations and delivery dates. Hedging belongs to one of the fundamental functions of futures market. Futures can be used to help producers and buyers protect themselves from price risk arising from many factors. For instance, in crude oil commodities, price risk occurs due to disrupted oil supply as a consequence of political issues, increasing of demand in emerging markets, turnaround in energy policy from the fossil fuel to the solar and efficient energy, etc. By hedging with futures, producers and users can set the prices they will receive or pay within a fixed range. A hedger takes a short position if he/she sells futures contracts while owning the underlying commodity to be delivered; a long position if he/she purchases futures contracts. The commonly known basis is defined as the difference between the futures and spot prices, which is mostly time-varying and mean-reverting. Due to such basis risk, a naïve hedging (equal and opposite) is unlikely to be effective. With the popularity of commodity futures, how to determine and implement the optimal hedging strategy has become an important issue in the field of risk management. Hedging strategies have been intensively studied since the 1960s. One of the most popular approaches to hedging is to quantify risk as variance, known as minimum-variance (MV) hedging. This hedging strategy is based on Markowitz portfolio theory, resting on the result that “a weighted portfolio of two assets will have a variance lower than the weighted average variance of the two individual assets, as long as the two assets are not perfectly and positively correlated.” MV strategy is quite well accepted, however, it ignores the expected return of the hedged portfolio and the risk preference of investors. Other hedging models with different objective functions have been studied intensively in hedging literature. Due to the conceptual simplicity, the value at risk (VaR) and conditional value at risk (C)VaR have been adopted as the hedging risk objective function. [...]
Author: Constantin Mellios
Publisher:
ISBN:
Category :
Languages : en
Pages : 24
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Book Description
We focus in this article on the impact of the convenience yield on optimal hedging in a futures market. Our investor can freely negotiate the underlying spot commodity and trade in the bond market. We undertake our study in a setting where the three state variables, namely the convenience yield, the spot price and interest rates, as well as the market price of risk evolve randomly over time. We achieve various decompositions of optimal demands to highlight the particular role of each investment instruments regarding the optimal hedge. Despite the thorough description of the risks of the economy, we obtain closed-form solutions, which further facilitate the assessment of the behavior of our investor.
Author: Akash Deep
Publisher:
ISBN:
Category : Futures
Languages : en
Pages : 40
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Book Description
Author: Abraham Lioui
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper derives optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of either a CARA or a logarithmic utility function. Existing futures contracts are not numerous enough to complete the market. In addition, in the case of CARA, the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical to those that would be derived if the constraint were ignored. Fictitiously completing the market, we can characterize the optimal hedging demands for futures contracts. Closed-form solutions exist in the logarithmic case, but not in the CARA case, since then a put (insurance) written on his wealth is implicitly bought by the investor. Although solutions are formally similar to those which obtain under complete markets, incompleteness leads in fact to second best optima.
Author: Avraham Kamara
Publisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 50
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Book Description
Author: L. Phlips
Publisher: Springer Science & Business Media
ISBN: 9780792310433
Category : Business & Economics
Languages : en
Pages : 330
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Book Description
Louis Phlips The stabilisation of primary commodity prices, and the related issue of the stabilisation of export earnings of developing countries, have traditionally been studied without reference to the futures markets (that exist or could exist) for these commodities. These futures markets have in turn been s~udied in isolation. The same is true for the new developments on financial markets. Over the last few years, in particular sine the 1985 tin crisis and the October 1987 stock exchange crisis, it has become evident that there are inter actions between commodity, futures, and financial markets and that these inter actions are very important. The more so as trade on futures and financial markets has shown a spectacular increase. This volume brings together a number of recent and unpublished papers on these interactions by leading specialists (and their students). A first set of papers examines how the use of futures markets could help stabilising export earnings of developing countries and how this compares to the rather unsuccessful UNCTAD type interventions via buffer stocks, pegged prices and cartels. A second set of papers faces the fact, largely ignored in the literature, that commodity prices are determined in foreign currencies, with the result that developing countries suffer from the volatility of exchange rates of these currencies (even in cases where commodity prices are relatively stable). Financial markets are thus explicitly linked to futures and commodity markets.
Author: Dosung Chung
Publisher:
ISBN:
Category : Commodity exchanges
Languages : en
Pages : 156
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Book Description
Author: David A. Hirshleifer
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Optimal futures hedging and equilibrium futures price bias are examined in a model characterized by two consumption goods, one of which has stochastically varying output, and where information arrives sequentially. Positive (negative) complementarity in consumer preferences promotes downward (upward) bias in the futures price viewed as a predictor of the later spot price. I demonstrate that the conclusion derived from partial equilibrium analysis - that when speculators are risk averse, risk premia are a function of hedging pressure - fails in the general equilibrium analysis, so long as there are no transaction costs. A counterexample is analyzed in which, as consumers' additive logarithmic preferences are varied, producers' hedging positions change from long to short, while the futures risk premium remains unchanged. However, hedging pressure is reinstated as a force influencing risk premia in the sense that the futures price is downward biased when hedgers take short positions and is upward biased when hedgers take long positions, provided it can be assumed (as is usually valid) that fixed setup costs of trading deter consumers more than producers from participating in the futures market.
