The Study of Price Risk Management Using Optimal Hedging Techniques for the University of Illinois Trust Farm Management Division PDF Download

Author: Jonathan Matthew Norvell
Publisher:
ISBN:
Category :
Languages : en
Pages : 258

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Author: Oleg V. Bychuk
Publisher: John Wiley & Sons
ISBN: 111808537X
Category : Business & Economics
Languages : en
Pages : 322

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Book Description
Identify and understand the risks facing your portfolio, how to quantify them, and the best tools to hedge them This book scrutinizes the various risks confronting a portfolio, equips the reader with the tools necessary to identify and understand these risks, and discusses the best ways to hedge them. The book does not require a specialized mathematical foundation, and so will appeal to both the generalist and specialist alike. For the generalist, who may not have a deep knowledge of mathematics, the book illustrates, through the copious use of examples, how to identify risks that can sometimes be hidden, and provides practical examples of quantifying and hedging exposures. For the specialist, the authors provide a detailed discussion of the mathematical foundations of risk management, and draw on their experience of hedging complex multi-asset class portfolios, providing practical advice and insights. Provides a clear description of the risks faced by managers with equity, fixed income, commodity, credit and foreign exchange exposures Elaborates methods of quantifying these risks Discusses the various tools available for hedging, and how to choose optimal hedging instruments Illuminates hidden risks such as counterparty, operational, human behavior and model risks, and expounds the importance and instability of model assumptions, such as market correlations, and their attendant dangers Explains in clear yet effective terms the language of quantitative finance and enables a non-quantitative investment professional to communicate effectively with professional risk managers, "quants", clients and others Providing thorough coverage of asset modeling, hedging principles, hedging instruments, and practical portfolio management, Hedging Market Exposures helps portfolio managers, bankers, transactors and finance and accounting executives understand the risks their business faces and the ways to quantify and control them.

Author: Ying Qian
Publisher: World Bank Publications
ISBN:
Category : Commodity exchanges
Languages : en
Pages : 47

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Book Description
The optimal portfolio model for hedging commodity price and exchange rate risks is extended to nonstationary economic time series data. The new approach corrects the problem of unstable solutions often found with earlier models using economic time series that are nonstationary.

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: Tianjiao Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 39

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Book Description
In this paper, we derive and assess a framework in which a firm's financial environment is an integral part of its hedging decisions. In the framework, the characteristics of firms in the network and their interconnections affect the firm's risk management strategy through impact on contract cost and efficacy of protection. We apply the model to an investment fund's decision making problem for transferring equity risk to a set of banks and obtain its optimal hedging decision based on a risk-return tradeoff analysis. We find hedge costs greatly influence the fund's choice of counterparties for contract: the cost advantage of a counterparty would award it a dominant role in the magnitude of protection sought from the counterparty. In the a posteriori analysis, we evaluate the hedge efficacy in terms of the counterparties' ability to honor the hedge contract. We investigate counter-party risk by introducing network-caused default probability and recovery rate to our model. We find that the objective and measures used for corporate risk management decide the optimality of hedge contract in the a posteriori analysis. Firms focusing on minimizing variance of firm value might consider a small deviation from the a priori optimal strategy; while those focussed on tail risk tend to stay with the a priori optimal strategy.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

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Author: Xiaomei Chen
Publisher:
ISBN:
Category : Agriculture
Languages : en
Pages : 108

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Author: University of Illinois at Urbana-Champaign. Dept. of Agricultural Economics
Publisher:
ISBN:
Category : Agriculture
Languages : en
Pages : 44

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Book Description

Author: Joaquín Arias Segura
Publisher: IICA
ISBN: 9789290394730
Category : Futures
Languages : en
Pages : 90

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Book Description

Author: Aleš Černý
Publisher:
ISBN:
Category :
Languages : en
Pages : 41

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Book Description
This paper derives a closed-form formula for the hedging error of optimal and continuously rebalanced hedging strategies in a model with leptokurtic IID returns and, in contrast to the standard Black-Scholes result, shows that continuous hedging is far from riskless even in the absence of transaction costs. Our result can be seen as an extension of the Capital Asset Pricing Model and the Arbitrage Pricing Theory, allowing for intertemporal risk diversification.lt;brgt;lt;brgt;The paper provides an efficient implementation of the optimal hedging strategy and of the hedging error formula via fast Fourier transform and demonstrates their speed and accuracy. We compute the size of hedging errors for individual options based on the historical distribution of returns on FT100 equity index as a function of moneyness and time to maturity. The resulting option price bounds are found to be non-trivial, and largely insensitive to model parameters, while the optimal hedging strategy remains virtually identical to the standard Black-Scholes delta hedge. Thus, with leptokurtic returns Black-Scholes price is the right value to hedge towards, but not the right value to price at.