Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market

Abstract

While the benefits of using futures to manage price risk are widely recognised, only certain groups of farmers have suitable futures at their disposal. This paper discusses an innovative instrument, developed in the Belgian-Dutch pear market, that provides an alternative to futures markets by creating a market for price swaps. Thus, the instrument provides some benefits of market-traded derivatives (like futures) while remaining a relatively simple instrument, which requires fewer market transactions. The paper describes key properties of the swap contracts and the platform used to trade them. In addition, it compares the conditions required for establishing price swap markets and futures markets. Thus, our study informs the design of similar risk management instruments for commodities and contexts where futures are absent.

Embeddedness of Hungarian pig prices in the European pork market: a volatility spillover and partial wavelet coherence study

“…A sizeable number of transactions must take place as a requisite, but in terms of capitalisation, the European futures market for live pig is minuscule compared to the U.S. hog market (Ziegelbäck andKastner, 2013, Adämmer et al, 2016). Instead, price swap was recently proposed as a remedy for pork meat producers that would force buyers to reveal their reservation price (Lievens et al, 2021) and would put producers in a better position.…”