Hedging with Commodity Futures

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Publisher : GRIN Verlag
ISBN 13 : 3656539219
Total Pages : 80 pages
Book Rating : 4.6/5 (565 download)

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Book Synopsis Hedging with Commodity Futures by : Su Dai

Download or read book Hedging with Commodity Futures written by Su Dai and published by GRIN Verlag. This book was released on 2013-11-12 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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. [...]

Commodity Futures Hedge Ratios

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Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Commodity Futures Hedge Ratios by : Je̜drzej Białkowski

Download or read book Commodity Futures Hedge Ratios written by Je̜drzej Białkowski and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Hedging a Portfolio with Futures

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Publisher : GRIN Verlag
ISBN 13 : 3638656330
Total Pages : 61 pages
Book Rating : 4.6/5 (386 download)

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Book Synopsis Hedging a Portfolio with Futures by : Marco Scheidler

Download or read book Hedging a Portfolio with Futures written by Marco Scheidler and published by GRIN Verlag. This book was released on 2007-06 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2003 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: A, Wright State University (Raj Soin College of Business), 16 entries in the bibliography, language: English, abstract: Abstract Undertaking business always involves taking risk. The future development of a company and their business is more uncertain the higher the risk that the company is facing. Risk management is a important factor in operating business. With the development of future markets entrepreneurs and investors obtained another risk management tool that made it possible to reduce risk. Futures are derivatives that can be used either for speculating or risk management. Especially in the area of financial futures, a rapid growth could be observed during the last few decades. Almost every month a new type of contract appears to meet the needs of a continuously growing corporate and institutional market. This paper considers future contracts as hedging application to reduce price risk. Futures are standardized contracts to buy or sell an asset in the future. There are various types of futures which differ in the type of the underlying asset. Futures are traded at organized exchanges. We consider the trading of future, their requirements, and market participants and their motivation. Different commercial users of future contracts hedge in different ways. A long hedge is used to reduce price risk of an anticipated purchase whereas a short hedge reduces the price risk of an asset that is already held. If there is no exact, the hedgers needs matching, contract available, the hedger should use a cross hedging strategy. With all these strategies the hedger takes, to the asset opposite, a position in the future market that is highly correlated with the change in price of the asset in the spot market. Losses in one market are offset by gains in the other market. For a successful hedge it is essential to choose an appropriate contract an

Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets

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Publisher :
ISBN 13 :
Total Pages : 36 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets by : Brajesh Kumar

Download or read book Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets written by Brajesh Kumar and published by . This book was released on 2010 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines hedging effectiveness of futures contract on a financial asset and commodities in Indian markets. In an emerging market context like India, the growth of capital and commodity futures market would depend on effectiveness of derivatives in managing risk. For managing risk, understanding optimal hedge ratio is critical for devising effective hedging strategy. We estimate dynamic and constant hedge ratio for Samp;P CNX Nifty index futures, Gold futures and Soybean futures. Various models (OLS, VAR, and VECM) are used to estimate constant hedge ratio. To estimate dynamic hedge ratios, we use VAR-MGARCH. We compare in-sample and out-of-sample performance of these models in reducing portfolio risk. It is found that in most of the cases, VAR-MGARCH model estimates of time varying hedge ratio provide highest variance reduction as compared to hedges based on constant hedge ratio. Our results are consistent with findings of Myers (1991), Baillie and Myers (1991), Park and Switzer (1995a,b), Lypny and Powella (1998), Kavussanos and Nomikos (2000), Yang (2001), and Floros and Vougas (2006).

Modeling Commodity Price Distributions and Estimating the Optimal Futures Hedge

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Publisher :
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.0/5 ( download)

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Book Synopsis Modeling Commodity Price Distributions and Estimating the Optimal Futures Hedge by : Richard Baillie

Download or read book Modeling Commodity Price Distributions and Estimating the Optimal Futures Hedge written by Richard Baillie and published by . This book was released on 1989 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Use of New York Cotton Futures Contracts to Hedge Cotton Price Risk in Developing Countries

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Author :
Publisher : World Bank Publications
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4./5 ( download)

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Book Synopsis The Use of New York Cotton Futures Contracts to Hedge Cotton Price Risk in Developing Countries by : Panayotis N. Varangis

Download or read book The Use of New York Cotton Futures Contracts to Hedge Cotton Price Risk in Developing Countries written by Panayotis N. Varangis and published by World Bank Publications. This book was released on 1994 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: New York cotton futures and options contracts provide an effective way to reduce cotton price volatility, despite relatively high basis risk.

Commodity Options

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Publisher : FT Press
ISBN 13 : 0137154224
Total Pages : 288 pages
Book Rating : 4.1/5 (371 download)

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Book Synopsis Commodity Options by : Carley Garner

Download or read book Commodity Options written by Carley Garner and published by FT Press. This book was released on 2009-01-23 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: Don’t Miss out on Today’s Hottest Trading Arena: Commodity Options! “The authors have written the definitive work on trading commodity options. Their in-depth knowledge of this subject is legendary among industry professionals and expert traders alike, and their ability to relay their knowledge through text, pictures, and the spoken word is unparalleled in our industry.” –Lan Turner, CEO, Gecko Software, Inc. “This book captures the realities of commodity option trading in a simple and easy- to-read presentation that will be beneficial for traders of all sizes and skill levels.” –Chris Jarvis, CFA, CMT, Caprock Risk Management, LLC “Even the most experienced investors often overlook the fact that options on futures are fundamentally different from options on stocks. This book fills that gap and sets the record straight with clear and concise descriptions that are easy to understand. Guaranteed to become a true source of value creation for anyone interested in trading commodity options.” –Jeff Augen, author, The Volatility Edge in Options Trading “Commodity Options arms readers with the strategies and tactics needed to take a more active approach to managing risk in today’s turbulent markets. The authors exhaustively break down every component of a commodity option to its lowest common denominator, making this book an essential piece of information for those looking to expand their trading tool box or further build on existing option strategies.” –John Netto, Chief Investment Strategist, NetBlack Capital and author, One Shot–One Kill Trading Investors worldwide are discovering the enormous opportunities available through commodity options trading. However, because commodities have differing underlying characteristics from equities, commodity ­options behave differently as well. In this book, two of the field’s most respected analysts present strategies built from the ground up for commodity options. Carley Garner and Paul Brittain begin with a quick primer on how commodity options work, how they evolved, and why conventional options strategies often fail in the commodity options markets. Next, using detailed examples based on their own extensive research, they show how to leverage the unique characteristics of commodity options in your own trades. You’ll walk through trades from “top to bottom,” master both long- and short-option approaches, and learn powerful strategies usually ignored in options books. For example, the authors introduce synthetic swing trading strategies that systematically reduce volatility from the market. This book’s easy-to-use trading strategies are strategically employed by the author’s clients every day: With Commodity Options, you can work to put the odds in your favor, too! • Why commodity options are different—and what it means to you Understand key differences in the underlying assets and the logistics of market execution • Systematically rewrite the odds in your favor Four ways to make winning trades more likely—and losing trades less common • When to trade short options—and how to manage the risk Why careful option selling may improve your odds of success • Master strategies designed for diverse market conditions Combine long and short options to create the right strategy for any market opportunity • Exploit short-lived trends through “synthetic” swing trading Get the advantages of futures contracts without the volatility

Hedging Commodities

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Author :
Publisher : Harriman House Limited
ISBN 13 : 0857193198
Total Pages : 454 pages
Book Rating : 4.8/5 (571 download)

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Book Synopsis Hedging Commodities by : Slobodan Jovanovic

Download or read book Hedging Commodities written by Slobodan Jovanovic and published by Harriman House Limited. This book was released on 2014-02-03 with total page 454 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is an invaluable resource of hedging case studies and examples, explaining with clarity and coherence how various instruments - such as futures and options - are used in different market scenarios to contain, control and eliminate price risk exposure. Its core objective is to elucidate hedging transactions and provide a systematic, comprehensive view on hedge performance. When it comes to hedge strategies specifically, great effort has been employed to create new instruments and concepts that will prove to be superior to classic methods and interpretations. The concept of hedge patterns - introduced here - proves it is possible to tabulate a hedging strategy and interpret its use with diagrams, so each example is shown visually with the result of radical clarity. A compelling visual pattern is also attached to each case study to give you the ability to compare different solutions and apply a best-fit hedging strategy in real-world situations. A diverse range of hedging transactions showing the ultimate payoff profiles and performance metrics are included. These have been designed to achieve the ultimate goal - to convey the necessary skills to allow business and risk management teams to develop proper hedging mechanisms and apply them in practice.

Fundamentals of Futures and Options Markets

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Publisher : Prentice Hall
ISBN 13 : 9780131354180
Total Pages : 561 pages
Book Rating : 4.3/5 (541 download)

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Book Synopsis Fundamentals of Futures and Options Markets by : John C. Hull

Download or read book Fundamentals of Futures and Options Markets written by John C. Hull and published by Prentice Hall. This book was released on 2007-05-29 with total page 561 pages. Available in PDF, EPUB and Kindle. Book excerpt: This new edition presents a reader-friendly textbook with lots of numerical examples and accounts of real-life situations.

Industrial Engineering, Management Science and Applications 2015

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Publisher : Springer
ISBN 13 : 3662472007
Total Pages : 1085 pages
Book Rating : 4.6/5 (624 download)

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Book Synopsis Industrial Engineering, Management Science and Applications 2015 by : Mitsuo Gen

Download or read book Industrial Engineering, Management Science and Applications 2015 written by Mitsuo Gen and published by Springer. This book was released on 2015-05-18 with total page 1085 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume provides a complete record of presentations made at Industrial Engineering, Management Science and Applications 2015 (ICIMSA 2015), and provides the reader with a snapshot of current knowledge and state-of-the-art results in industrial engineering, management science and applications. The goal of ICIMSA is to provide an excellent international forum for researchers and practitioners from both academia and industry to share cutting-edge developments in the field and to exchange and distribute the latest research and theories from the international community. The conference is held every year, making it an ideal platform for people to share their views and experiences in industrial engineering, management science and applications related fields.

Testing for Constant Hedge Ratios in Commodity Markets

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Publisher :
ISBN 13 :
Total Pages : 19 pages
Book Rating : 4.:/5 (478 download)

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Book Synopsis Testing for Constant Hedge Ratios in Commodity Markets by : Giancarlo Moschini

Download or read book Testing for Constant Hedge Ratios in Commodity Markets written by Giancarlo Moschini and published by . This book was released on 2001 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Financial Hedging

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Publisher :
ISBN 13 : 9781606926659
Total Pages : 0 pages
Book Rating : 4.9/5 (266 download)

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Book Synopsis Financial Hedging by : Patrick N. Catlere

Download or read book Financial Hedging written by Patrick N. Catlere and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial hedging refers to taking out investments in order to reduce or cancel the risk in another investment. Its purpose is to minimise unwanted business risk while still allowing the business to profit from investment activity. The problem of credit risk is one of the most important problems in finance. It consists of computing the probability of a firm defaulting on a debt. The time evolution of rating for credit risk models can be studied by means of Markov transition models. This book looks at the homogeneous and non-homogeneous semi-Markov backward credit risk migration models. A joint optimisation model for a firm's hedging and leverage decisions is also examined to help establish an integrated framework for value creation. Rather than artificially separating the two interrelated parts of the firm's financial policy, both corporate decision variables are treated as endogenous. Furthermore, the cross-sectional variation in indirect bankruptcy costs is discussed, possibly resulting from a deterioration of relationships with customers, suppliers or other stakeholders prior to the legal act of bankruptcy. The effect of probability weighting on hedging decisions is explored in this book. Observed hedge ratios in a storage context are close to zero in many situations and often smaller than the standard minimum-variance hedge zero. Thus, the importance of probability weighting in decision making and how it can cause dramatic changes in behavior is looked at. This book also re-examines hedging performance of the minimum variance hedge ratios (MVHR) estimated using both the OLS and the GARCH-type models with S&P 500 index futures contracts. In particular, the out-of-sample comparison of hedging performance of the MVHRs under different market volatility regimes are looked at. In addition, the analysis for parametric and non-parametric Markov processes are discussed and the construction of the transition matrix in these two different cases. Several possible strategies where the investors recalibrate their portfolios at a fixed temporal horizon are proposed. The authors also show how the Markov assumption can be used to forecast the portfolio returns and some simple empirical comparisons between Markovian strategies and classic reward-risk ones. Finally, articles in this book contribute to the literature on futures hedging in commodity futures markets by using wavelet transform analysis to define an explicit and tractable concept of time horizon. Differences in hedge ratios are discussed both across commodities and, for each commodity, over all time horizons of decision-making.

Hedging Effectiveness of Constant and Time-varying Hedge Ratios Using Futures Contracts

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Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Hedging Effectiveness of Constant and Time-varying Hedge Ratios Using Futures Contracts by : Di Ai

Download or read book Hedging Effectiveness of Constant and Time-varying Hedge Ratios Using Futures Contracts written by Di Ai and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Forecasting of Daily Dynamic Hedge Ratio in Agricultural and Commodities' Futures Markets

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (824 download)

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Book Synopsis Forecasting of Daily Dynamic Hedge Ratio in Agricultural and Commodities' Futures Markets by : Yuanyuan Zhang

Download or read book Forecasting of Daily Dynamic Hedge Ratio in Agricultural and Commodities' Futures Markets written by Yuanyuan Zhang and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the predictive power of six bivariate GARCH-CCC (constant conditional correlation) models; the GARCH (1, 1), BEKK GARCH (1, 1), GARCH-X (1, 1), BEKK-X (1, 1), GARCH-GJR (1, 1) and QGARCH (1, 1) based on both normal and student's t distributions. Empirical investigations are conducted by forecasting the daily hedge ratios from agricultural futures markets using one-step-ahead over 1 year and 2 year out-of-sample period. The forecasting of OHR in agricultural and commodities' futures markets has not been studied thoroughly and few publications are available in literature. My work enriches the literature and will hopefully provide guidance for hedging in these markets. To forecast the OHR, we apply data from three storable commodities, coffee, wheat and soybean and two non-storable commodities, live cattle and live hog. Four tests are conducted to evaluate the forecasting errors of out-of-sample forecasted return of the portfolio based on the forecasted OHR. Our study shows that the asymmetric GARCH model outperforms other models, and the standard GARCH is the weakest for 1-year forecast. However, the standard GARCH model performs well for 2-year forecast of live cattle with student's t distributed residuals. More generally, the BEKK and asymmetric GJR and QGARCH models are recommended to forecast OHR on both 1-year and 2-year horizons with normal and student's t distributions for storable products and the asymmetric models for non- storable commodities. Furthermore, our study demonstrates that the predictive power of GARCH models depends on the distribution of residuals, the commodity and also the length of the forecast horizons. This result is consistent with the those from Poon and Granger (2003) and Chen et.al (2003). Given accurately forecasted OHR, investors can determine appropriate hedging strategies for portfolio management to reduce or transfer risks, and prepare for the capital needed for hedging.

Commodity Futures Hedging, Risk Aversion and the Hedging Horizon

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Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Commodity Futures Hedging, Risk Aversion and the Hedging Horizon by : Thomas Conlon

Download or read book Commodity Futures Hedging, Risk Aversion and the Hedging Horizon written by Thomas Conlon and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of management preferences on optimal futures hedging strategy and associated performance. Applying an expected utility hedging objective, the optimal futures hedge ratio is determined for a range of preferences on risk aversion, hedging horizon and expected returns. Empirical results reveal substantial hedge ratio variation across distinct management preferences and are supportive of the hedging policies of real firms. Hedging performance is further shown to be strongly dependent on underlying preferences. In particular, hedgers with high risk aversion and short horizon reduce hedge portfolio risk but achieve inferior utility in comparison to those with low aversion.

Spot Asset Carry Cost Rates and Futures Hedge Ratios

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Publisher :
ISBN 13 :
Total Pages : 24 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Spot Asset Carry Cost Rates and Futures Hedge Ratios by : Dean Leistikow

Download or read book Spot Asset Carry Cost Rates and Futures Hedge Ratios written by Dean Leistikow and published by . This book was released on 2019 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: The traditional futures hedge ratio (hT) is calculated ex post via economically structureless statistical analysis. Its lack of an economic foundation makes it inefficient and elevates its risk of error due to a regime shift. This paper proposes an ex ante, more efficient, carry cost rate (c) based hedge ratio (hc). While the paper shows that hc is biased, it demonstrates that c underlies both hT and hc, such that hT/hc is stationary. Consequently, a prior period's hT/hc ratio, even if from the distant past, or a different c regime, works well as an ex ante bias adjustment multiplier for the current hc to mitigate its bias. Finally, it shows that the hedge effectiveness for both hc and the bias-adjusted version of hc exceed that for hT, though the excess hedge effectiveness of hc over hT is not always statistically significant.

The Theory and Practice of Futures Markets

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Publisher : Free Press
ISBN 13 :
Total Pages : 440 pages
Book Rating : 4.F/5 ( download)

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Book Synopsis The Theory and Practice of Futures Markets by : Raymond M. Leuthold

Download or read book The Theory and Practice of Futures Markets written by Raymond M. Leuthold and published by Free Press. This book was released on 1989 with total page 440 pages. Available in PDF, EPUB and Kindle. Book excerpt: To find out more about Rowman & Littlefield titles please visit us at www.rowmanlittlefield.com.