Optimal Hedging Strategies for Options in Electricity Futures Markets

2021 ◽  
Author(s):  
Markus Hess
Keyword(s):  
Futures Markets ◽  
Hedging Strategies ◽  
Optimal Hedging

Optimal hedging and spreading on wheat futures markets

1989 ◽  
Vol 9 (2) ◽  
pp. 163-170 ◽  
Author(s):  
Da-Hsiang Donald Lien
Keyword(s):  
Futures Markets ◽  
Optimal Hedging

scholarly journals Mean-Variance Analysis of Alternative Hedging Strategies

1972 ◽  
Vol 4 (1) ◽  
pp. 123-128 ◽  
Author(s):  
David Holland ◽  
Wayne D. Purcell ◽  
Terry Hague
Keyword(s):  
Futures Markets ◽  
Market Price ◽  
Theoretical Models ◽  
Spot Price ◽  
Hedging Strategies ◽  
Optimum Position ◽  
Futures Price ◽  
The Difference ◽  
Mean Variance ◽  
Over Time

Much of the research in commodity hedging has concentrated upon the development of theoretical models describing the optimum position in cash and futures markets. Other studies have shown that the difference between current spot price and futures price represents the market price for storage, processing services, or both. The revenue stabilizing potential of futures markets for commodities with continuous as opposed to noncontinuous inventories has also received attention. However, very little work or literature is publicly available on how different hedging strategies actually would have performed for a particular commodity over time.

VAR-BASED OPTIMAL PARTIAL HEDGING

2013 ◽  
Vol 43 (3) ◽  
pp. 271-299 ◽  
Author(s):  
Jianfa Cong ◽  
Ken Seng Tan ◽  
Chengguo Weng
Keyword(s):  
Financial Market ◽  
Value At Risk ◽  
Risk Measure ◽  
Market Model ◽  
Risk Exposure ◽  
Hedging Strategy ◽  
Quantile Hedging ◽  
Hedging Strategies ◽  
Optimal Hedging ◽  
Partial Hedging

AbstractHedging is one of the most important topics in finance. When a financial market is complete, every contingent claim can be hedged perfectly to eliminate any potential future obligations. When the financial market is incomplete, the investor may eliminate his risk exposure by superhedging. In practice, both hedging strategies are not satisfactory due to their high implementation costs, which erode the chance of making any profit. A more practical and desirable strategy is to resort to the partial hedging, which hedges the future obligation only partially. The quantile hedging of Föllmer and Leukert (Finance and Stochastics, vol. 3, 1999, pp. 251–273), which maximizes the probability of a successful hedge for a given budget constraint, is an example of the partial hedging. Inspired by the principle underlying the partial hedging, this paper proposes a general partial hedging model by minimizing any desirable risk measure of the total risk exposure of an investor. By confining to the value-at-risk (VaR) measure, analytic optimal partial hedging strategies are derived. The optimal partial hedging strategy is either a knock-out call strategy or a bull call spread strategy, depending on the admissible classes of hedging strategies. Our proposed VaR-based partial hedging model has the advantage of its simplicity and robustness. The optimal hedging strategy is easy to determine. Furthermore, the structure of the optimal hedging strategy is independent of the assumed market model. This is in contrast to the quantile hedging, which is sensitive to the assumed model as well as the parameter values. Extensive numerical examples are provided to compare and contrast our proposed partial hedging to the quantile hedging.

Optimal Hedging in Futures Markets with Multiple Delivery Specifications

1987 ◽  
Vol 42 (4) ◽  
pp. 1007-1021 ◽  
Author(s):  
AVRAHAM KAMARA ◽  
ANDREW F. SIEGEL
Keyword(s):  
Futures Markets ◽  
Optimal Hedging

LOCALLY RISK-MINIMIZING HEDGING FOR EUROPEAN CONTINGENT CLAIMS WRITTEN ON NON-TRADABLE ASSETS WITH COMMON JUMP RISK

2021 ◽  
pp. 1-25
Author(s):  
Xiaonan Su ◽  
Yu Xing ◽  
Wei Wang ◽  
Wensheng Wang
Keyword(s):  
Closed Form Solution ◽  
Contingent Claims ◽  
Form Solution ◽  
Martingale Measure ◽  
Call Option ◽  
Transform Method ◽  
Jump Risk ◽  
European Call Option ◽  
Hedging Strategies ◽  
Optimal Hedging

This article investigates the optimal hedging problem of the European contingent claims written on non-tradable assets. We assume that the risky assets satisfy jump diffusion models with a common jump process which reflects the correlated jump risk. The non-tradable asset and jump risk lead to an incomplete financial market. Hence, the cross-hedging method will be used to reduce the potential risk of the contingent claims seller. First, we obtain an explicit closed-form solution for the locally risk-minimizing hedging strategies of the European contingent claims by using the Föllmer–Schweizer decomposition. Then, we consider the hedging for a European call option as a special case. The value of the European call option under the minimal martingale measure is derived by the Fourier transform method. Next, some semi-closed solution formulae of the locally risk-minimizing hedging strategies for the European call option are obtained. Finally, some numerical examples are provided to illustrate the sensitivities of the optimal hedging strategies. By comparing the optimal hedging strategies when the underlying asset is a non-tradable asset or a tradable asset, we find that the liquidity risk has a significant impact on the optimal hedging strategies.

Managing Foreign Exchange Risk

2018 ◽  
pp. 172-191
Keyword(s):  
Standard Deviation ◽  
Foreign Exchange ◽  
Efficient Frontier ◽  
Interest Rate Risk ◽  
Foreign Exchange Risk ◽  
Hedging Strategies ◽  
Optimal Hedging ◽  
Exchange Risk ◽  
The Interest Rate ◽  
Exchange Options

This chapter discusses the method's application to foreign exchange risk management by elaborating how to use foreign exchange options for hedging the interest rate risk. The problem is to determine how many European Put options to purchase for optimal hedging of the foreign exchange risk: 1) Stochastic Optimisation is used to construct Efficient Frontier of optimal hedging strategies of the foreign exchange risk with minimal Standard Deviation; 2) Monte Carlo simulation is utilised to stochastically calculate and measure the Total Amount Hedged (US $), Variance, Standard Deviation and VAR of Efficient Frontier optimal hedging strategies; 3) Six Sigma process capability metrics are also stochastically calculated against desired specified target limits for Total Amount Hedged and associated VAR of Efficient Frontier optimal hedging strategies; 4) Simulation results are analysed and the optimal hedging strategy is selected based on the criteria of minimal VAR.

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