scholarly journals Hedging Strategies Used in Selection of “Options” and “Forward” Contracts in Derivative Market

2020 ◽  
Vol 8 (1) ◽  
pp. 1-12
Author(s):  
Jayaraman Balakrishnan
Keyword(s):  
Risk Management ◽  
Forward Contracts ◽  
Hedging Strategy ◽  
Price Movement ◽  
Hedging Strategies ◽  
Options Trading ◽  
Derivative Market ◽  
Selection Of

This Article focuses on the derivatives market, which has crossed several milestones during its developing phase, but there is still a long way to go, mainly when the International derivatives market has seen a variety of products, with sufficient liquidity, depth, and volume. One remarkable thing in the derivative market was the existence of forwarding contracts. But the major milestone in developing the derivatives market in India was the introduction of Options. The objective of introducing Options was to provide a complicated hedging strategy for the corporate in its risk management activities. Options trading can be taken to the next level with the help of understanding of Greeks (Delta Δ, Gamma Γ, Vega ν, Theta Θ, Rho ρ) and their Hedging techniques. Each Greek separates a variable that can drive an option’s price movement, giving insight on how the option’s premium will vary if that variable changes.

scholarly journals Hedging techniques in commodity risk management

2014 ◽  
Vol 60 (No. 4) ◽  
pp. 174-182 ◽  
Author(s):  
J. Taušer ◽  
R. Čajka
Keyword(s):  
Risk Management ◽  
Agricultural Production ◽  
Final Decision ◽  
Forward Contracts ◽  
Trade Off ◽  
Advantages And Disadvantages ◽  
Hedging Strategies ◽  
Option Strategies ◽  
Agricultural Business ◽  
Commodity Risks

The article focuses on selected aspects of risk management in agricultural business with the aim to discuss and compare different hedging methods which are relevant for managing the commodity risks associated with agricultural production. The article provides a broader context for understanding the risks and possible responses to it and analyses four basic hedging strategies – commodity futures, forward contracts, options and option strategies. The substance, advantages and disadvantages of each hedging technique are pointed out and compared to each other with the conclusion that there is always some kind of trade-off between the advantages and disadvantages of the particular strategies. The farmers shall, therefore, consider both all aspects of the relevant strategies and their expectations, before they make the final decision which instruments to use.  

MENGELOLA RESIKO DENGAN PRODUK DERIVATIF

2008 ◽  
Author(s):  
Dandes Rifa
Keyword(s):  
Risk Management ◽  
Value At Risk ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Cash Flows ◽  
Market Risks ◽  
Hedging Strategies ◽  
Operational Hedging ◽  
Potential Risks ◽  
Derivative Products

The main objective of risk management is to minimize the potential for losses (risk) arising from unexpected changes in currency rates, credit, commodities and equities. One of the risks faced by companies is market risk (value at risk). This article aims to explain that risk management can be one of them by using derivative products. Derivative transactions is very useful for business people who want to hedge (hedging) against a commodity, which always experience price changes from time to time. There are three strategies that can be used to hedge the balance sheet hedging strategy, operational hedging strategies and contractual hedging strategies. Staregi contractual hedging is a form of protection that is done by forming a contractual hedging instruments in order to provide greater flexibility to managers in managing the potential risks faced by foreign currency. Most of these contractual hedging instrument in the form of derivative products. The management can enhance shareholder value by controlling risk. -Party investors and other interested parties hope that the financial manager is able to identify and manage market risks to be faced. If the value of the firm equals the present value of future cash flows, then risk management can be justified. 

Hedging of Variable Annuities under Basis Risk

2020 ◽  
Vol 14 (2) ◽  
Author(s):  
Jan Bauer
Keyword(s):  
Financial Market ◽  
Negative Impact ◽  
Mathematical Finance ◽  
Insurance Company ◽  
Hedging Strategy ◽  
Variable Annuities ◽  
Basis Risk ◽  
Hedging Strategies ◽  
Cross Hedging ◽  
Geometric Brownian Motions

AbstractI study dynamic hedging for variable annuities under basis risk. Basis risk, which arises from the imperfect correlation between the underlying fund and the proxy asset used for hedging, has a highly negative impact on the hedging performance. In this paper, I model the financial market based on correlated geometric Brownian motions and analyze the risk management for a pool of stylized GMAB contracts. I investigate whether the choice of a suitable hedging strategy can help to reduce the risk for the insurance company. Comparing several cross-hedging strategies, I observe very similar hedging performances. Particularly, I find that well-established but complex strategies from mathematical finance do not outperform simple and naive approaches in the context studied. Diversification, however, could help to reduce the adverse impact of basis risk.

Price risk management using forward contracts: the case of farmers in Pakistan

2018 ◽  
Vol 9 (3) ◽  
pp. 241 ◽  
Author(s):  
Shahab E. Saqib ◽  
John K.M. Kuwornu ◽  
Ubaid Ali ◽  
Sanaullah Panezai ◽  
Irfan Ahmad Rana
Keyword(s):  
Risk Management ◽  
Price Risk ◽  
Forward Contracts ◽  
Price Risk Management

Automatic Trading System Design

2010 ◽  
pp. 166-183 ◽  
Author(s):  
Petr Tucnik
Keyword(s):  
Risk Management ◽  
System Design ◽  
Technical Analysis ◽  
Futures Trading ◽  
Trading System ◽  
General Overview ◽  
The Right ◽  
Selection Of

This chapter will focus on the problem of design of automatic trading system for futures trading, specifically its design lifecycle. This is a task that can be divided into several phases. In this chapter we focus on the selection of proper environment (i.e. choose the right market and commodity), choosing appropriate set of tools (fundamental or technical analysis indicators) and creating the automatic trading system itself, which has to follow rules of money (risk) management and trading psychology. The chapter stresses the importance of the system`s acceptability for the user. The last phase covers the topic of testing and optimization. This chapter provides a general overview of each of these phases together with a discussion of typical issues.

Liquidity hedging with futures and forward contracts

2019 ◽  
Vol 36 (2) ◽  
pp. 265-290 ◽  
Author(s):  
Yong Jae Shin ◽  
Unyong Pyo
Keyword(s):  
Firm Value ◽  
Minimal Amount ◽  
Forward Contracts ◽  
Content Type ◽  
Term Operation ◽  
Futures Contract ◽  
Hedging Strategies ◽  
Parameter Values ◽  
Risky Debt

Purpose This paper aims to develop hedging strategies using both futures and forward contracts and issuing risky debt when financially constrained firms are forced to operate in long horizon. Design/methodology/approach The authors present a model for developing hedging strategies using both futures and forward contracts and issuing risky debt. A theoretical model employing stochastic differential equations for forward hedging is illustrated with a numerical example over parameter values consistent with the literature. Findings A financially constrained firm with limited cash balance must hedge its liquidity with both future and forward contracts and issue risky debt to support its long-term operations. The firm can issue a minimal amount of risky debt by adding forward contracts into hedging and can increase its value higher than that when hedging with only futures contracts. We show numerically that hedging with both futures and forward contracts allows the firm to issue minimal risky debt in increasing its firm value. Practical implications When Metallgesellschaft nearly collapsed in 1993, it offered long-term forward contracts to its customers and attempted to hedge its risk by rolling over series of short-term futures contract. It created the situation of inherent mismatch in maturity structure. A financially constrained firm operating in a long horizon appears to commit its liquidity as long-term forward contracts, which cannot be fully hedged with series of futures contacts. The firm should hedge its liquidity with both futures and forward contracts and avoid liquidation with deadweight costs in its long-term operation. Originality/value This is the first study examining hedging strategies with both futures and forward contracts.

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