Risk-Hedging Techniques

2014 ◽  
pp. 305-335
Author(s):  
Morton Glantz ◽  
Robert Kissell
Keyword(s):  
Risk Hedging

Risk-Shifting or Risk-Hedging of Portfolio Choices Under Bond Default Risks

2012 ◽  
Author(s):  
Jin-ray Lu ◽  
Chih-Ming Chan ◽  
Yi-Long Hsiao ◽  
Kai-Ping Chen
Keyword(s):  
Risk Shifting ◽  
Risk Hedging ◽  
Portfolio Choices ◽  
Default Risks

scholarly journals COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Afees A. Salisu ◽  
Kingsley Obiora
Keyword(s):  
Crude Oil ◽  
Structural Breaks ◽  
Exchange Traded Funds ◽  
Modeling Framework ◽  
Risk Hedging ◽  
Financial Innovations ◽  
Oil Market ◽  
Price Series ◽  
Hedging Effectiveness ◽  
Multivariate Volatility

AbstractThis study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

Liberalism and Regulation of Financial Market

2012 ◽  
pp. 20-30
Author(s):  
V. Milovidov
Keyword(s):  
Hedge Funds ◽  
Financial Services ◽  
Financial Stability ◽  
Financial Risk ◽  
Risk Hedging ◽  
Rights Protection ◽  
Starting Point ◽  
Derivative Instruments ◽  
Credit Default ◽  
Financial Transactions

Reagan's financial sector deregulation became a starting point for the financial engineering, derivatives, combinatory financial operations industry. Due to it hedge funds developed, and a range of risk financial transactions expanded among the banks that found both new forms of financial risk hedging and new sources of income: arbitrage and hedging, credit default swaps, operations with "second-rate” credits. It was them that exploded the market in 2007–2008. The reaction of states realized in a string of regulation initiatives, including creation of supranational coordination bodies (in particular, Financial Stability Board); reformatting of mega regulators and on their base – the shaping of state prudential supervision and financial services consumer rights protection bodies with different tasks; restrictions on hedge funds activities; toughening of derivative instruments regulation and implementing of a central counterparty institute on derivatives market.

PRICE RISK HEDGING IN INTERNATIONAL TRADE OF AGRICUL-TURE AND FOOD COMMODITIES USING OPTIONS

2020 ◽  
Author(s):  
Nikolai Nalbandian ◽  
Keyword(s):  
International Trade ◽  
Multinational Enterprises ◽  
Practical Importance ◽  
Sustainable Growth ◽  
Price Risk ◽  
Continuous Increase ◽  
Economic Agents ◽  
Risk Hedging ◽  
Option Contracts ◽  
Food Commodities

The focus of this article is an employment of option contracts by economic agents when hedging a price risk in international trade of agriculture and food commodities. Despite a serious downturn in the world economy accompanied with major logistics and global value chains disruptions caused by Coronavirus disease in 2020, international agri-food trade demonstrates a sustainable growth supported by a constantly waxing demand due to continuous increase in population and improvement in living standards as well as a higher supply due to modern technological progress. It therefore implies that a comprehensive price risk management system should be introduced to avoid or minimize market participants’ exposure to potentially adverse future events. The article is devoted to the study of the key advantages of using options as an integrated element within such a system. Comparative analysis of future and option contracts is conducted to better understand their respective application depending on a risk profile of an event. The economic nature of options is presented from the perspective of a concept of price insurance that provides for an existence of a certain risk premium determined by market forces which is paid by economic agents to obtain such a price guarantee. Fundamental characteristics of an option contract as a financial derivative, its types and features, reason of usage according to the goals that economic agents, including e.g., powerful multinational enterprises (MNE), try to achieve depending on their specific market position are described. The article explains situations of economic agents, both producers and processors of agricultural commodities on the one hand (acting as hedgers) and speculators one the other hand (acting as such), being naturally long or naturally short as well as respective tactics based on options they adhere to with the aim of protecting their positions against unfavorable moves in market prices. Thus, the fact it refers to real scenarios of using options as price risk hedging tools which international traders can utilize when moving agricultural and food commodities globally, reinforces opinion that this article is of a significant practical importance.

scholarly journals HOW EFFECTIVE IS FUTURES AS AN INSTRUMENT OF HEDGING AGAINST PRICE RISK? -A STUDY BASED ON SPOT AND FUTURE PRICES OF GOLD

2016 ◽  
Vol 4 (9) ◽  
pp. 143-150
Author(s):  
Shafeeque Muhammad ◽  
Thomachan
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Price Risk ◽  
Time Varying ◽  
Risk Hedging ◽  
Hedging Effectiveness ◽  
Cash Market ◽  
Hedge Ratios ◽  
Opposite Position

This paper examines the role of commodity futures market as an instrument of hedging against price risk. Hedging is the practice of offsetting the price risk in a cash market by taking an opposite position in the futures market. By taking a position in the futures market, which is opposite to the position held in the spot market, the producer can offset the losses in the latter with the gains in the former. Both static and time varying hedge ratios have been calculated using VECM-MGARCH model. Variance of return from hedge portfolio has been found to be low. Further hedging effectiveness has been observed to be around 12%.

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