Commodity price risk management using option strategies

Rusnáková, Martina

doi:10.17221/101/2014-agricecon

Cited by 11 publications

(15 citation statements)

References 10 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…By understanding other market economies, we can see the futures market plays a huge role in the stability of other agricultural markets [10]. Our corn economy should introduce futures to help stabilize prices.…”

Section: Using Financial Methods Like Future To Control Market Fluctuamentioning

confidence: 99%

Using Financial Control to Answer Dilemma in Chinese Corn Market

Yu¹,

Zhang²,

Yu³

2017

dtssehs

View full text Add to dashboard Cite

Abstract. There are two large issues looming over the Chinese market for corn; low profit margins and market fluctuation. Analysis of the industrial market allow us to see that the rising costs and excess of supply create a problem that makes the future of the Chinese corn market look bleak. While national policy supports subsidies of the production costs, it does not show any sort of alleviation of the market crisis. The Chinese government ought to use the powers of big data and internet of things to increase the effectiveness of subsidies by transitioning into insurance compensation for farmers. Financial controls like futures and stock should be used to protect against market fluctuations.

show abstract

Section: Using Financial Methods Like Future To Control Market Fluctuamentioning

confidence: 99%

Using Financial Control to Answer Dilemma in Chinese Corn Market

Yu¹,

Zhang²,

Yu³

2017

dtssehs

View full text Add to dashboard Cite

show abstract

“…Also, Rusnáková and Šoltés (2012), Rusnáková (2015), Šoltés and Rusnáková, (2012;2013) deal with the hedging against a price increase or drop by means of different options strategies using vanilla and barrier options. Following the studies mentioned we analyse all possible ways of Short Call Ladder strategy creation using barrier options with the aim to hedge against a price increase.…”

Section: Methodsmentioning

confidence: 99%

Risk Management in Energy Sector Using Short Call Ladder Strategy

Harčariková¹,

Šoltés²

2016

MJE

View full text Add to dashboard Cite

The purpose of the paper is to focus on selected aspects of the hedging using of Short Call Ladder strategy created by barrier options. Given barrier option strategies belong to the appropriate tools widely used for risk management with an effective solution for limiting the loss from underlying asset´s price development. There is investigated the motivations and practice of firms with regard to using options in their risk management activities. Methodology of the paper is based on European up and knock-in call options together with standard call and barrier call options in analytical expression, which are used for investigation of hedging strategies in increasing markets. According to Haug model, barrier option prices are calculated, due to lack of real data in the market. Based on theoretical models of suitable hedged profit functions in analytical expressions, there are analysed their benefits and risks point of view in general. The requirements of zerocost option strategy have to be met. Our theoretical results are applied to the Energy Select Sector SPDR ETF, where designed hedged portfolios are analysed and compared to each other with the recommendations for investors. According to our findings we can recommend the hedging variant 2A or 4 as the best variant ensuring the lowest costs at expected intervals of the shares spot price at the maturity date. However, the selection of the right hedged portfolio is based on suitable combinations of the strike prices, the lower and the upper barriers for the best hedging profit function´s achievement. JEL classification:G11, G13, G32

show abstract

“…The papers Rusnáková, 2015;Šoltés and Rusnáková, 2012; 2013) deal with the hedging against a price increase or drop by means of different options strategies using vanilla and barrier options. Following the studies mentioned we analyze all possible ways of Nova 3 option strategy creation using barrier options with the aim to hedge against a price increase.…”

Section: Methodsmentioning

confidence: 99%

“…In the context of previous conditions, the secured profit function (24) is created by adding the naked position (19) to the profit functions of individual options (21), (22) and (23). …”

Section: Proposal Of the Hedging Variants Created By Barrier Optionsmentioning

confidence: 99%

Gold price risk management through Nova 3 option strategy created by barrier options

Šoltés

Harčariková

2016

Investment Management and Financial Innovations

View full text Add to dashboard Cite

The paper is focused on selected aspects of the hedging using of Nova 3 option strategy created by barrier options, which are appropriate tools widely used for risk management of high risk underlying assets. Financial risk management using option strategies is an effective solution for limiting the loss from underlying asset's price development. The Nova 3 option strategy is suitable for hedging against increase in price of the underlying asset in case of its purchase in future. In our approach, European up and knock-in call options together with standard put and barrier put options are used for investigation of hedging strategies in increasing markets. Theoretical models of suitable hedged profit functions in analytical expressions are analyzed also from their benefits and risks point of view. Created combinations of these hedging variants have to meet the requirements of zero-cost option strategy. Based on the own theoretical results, the hedged profit portfolio is applied to SPDR Gold Shares, where due to the lack of data on real barrier option premiums, these were calculated according to Haug model. Designed secured variants through Nova 3 option strategy were analyzed and compared to each other with the recommendations of the best possibilities for investors.Keywords: option strategy, hedging, barrier option, SPDR Gold Shares. JEL Classification: G11, G13, G32. Introduction ©Over the past decades, globalization and capital liberalization have created a highly interconnected financial system, which is still exposed to increased volatility. Business leaders, firms and others have to face a big market risk, which is related with their business activities. The methods and mainly instruments used to manage the market risk are continuously developing. One of the favorite possibilities how to manage the risk is the hedging using financial derivatives. Financial derivatives, mainly options and option strategies, are used in risk management due to their liquidity, cost effectiveness and flexibility. Choosing of the effective hedging strategies is important for avoidance of disruptive consequences.Today there are a lot of scientific studies focusing on implementing corporate risk management through hedging using derivatives. For example, papers (Bajo, Barbi and Romagnoli, 2014;Brown, 2001;Guay and Kothari, 2003) deal with the managing of risk using financial derivatives. Hankins (2011) investigates how the firms manage a risk by examining the interactions between financial and operational hedging and Loss (2012) studies optimal hedging strategies. Although over the years, numerous studies have investigated the hedging by using of option strategies, mainly classic vanilla options, there is limited research dealing with hedging using barrier options. We investigate this problem with the ambition to fill the gap. Therefore, the theoretical results of our analysis will be useful not only for financial institutions, but also for academic and research community.

show abstract

Commodity price risk management using option strategies

Cited by 11 publications

References 10 publications

Using Financial Control to Answer Dilemma in Chinese Corn Market

Using Financial Control to Answer Dilemma in Chinese Corn Market

Risk Management in Energy Sector Using Short Call Ladder Strategy

Gold price risk management through Nova 3 option strategy created by barrier options

Contact Info

Product

Resources

About