Commodity price risk management using option strategies

https://doi.org/10.17221/101/2014-AGRICECONCitation:Rusnáková M. (2015): Commodity price risk management using option strategies. Agric. Econ. – Czech, 61: 149-157.
download PDF
In the world of increasing price volatility, it is more important than ever to understand how to manage the price risk. The paper deals with the price risk management issues associated with commodities. Using options is performed by an analysis of hedging strategies in the commodity market. The authors focus on the application of the vanilla option strategies to risk management in order to point out the advantages and disadvantages of each hedging strategy. Based on the general expressions of selling price intervals, there are modelled various hedged scenarios of wheat. The authors look at the wheat option contracts traded on the Chicago Board of Trade. The comparative comparison of the option hedging strategies has shown the best results for the commodity seller who hedges against a price decline.
References:
Amaitiek O.F.S., Bálint T., Rešovský M. (2010): The Short Call Ladder strategy and its application in trading and hedging. Acta Montanistica Slovaca, 15: 171–182.
 
Carol A. (2008): Market Risk Analysis: Pricing, Hedging and Trading Financial Instruments. Wiley, New York.
 
Gardijan M. (2011): Strategije trgovanja opcijama. (Option trading strategies.) Ekonomski Pregled, 62: 311–337.
 
Geman H. (2012): Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy. The Wiley Finance Series, Wiley, West Sussex.
 
Hull J.C. (2008): Options, Futures, and Other Derivatives. 7th ed. Pearson Prentice Hall, New Jersey.
 
Chorafas D.N. (2008): Introduction to Derivative Financial Instruments: Options, Futures, Forwards, Swaps, and Hedging. McGraw-Hill Professional Publishing, New York.
 
Labuszewski J.W., Nyhoff J.E., Co R., Peterson P.E. (2011): The CME Group Risk Management Handbook: Products and Applications. Wiley, New York.
 
Lazar V.L., Lazar T.A. (2011): Option strategies. Metalurgia International, 16: 114–120.
 
Leoni P., Vandaele N., Vanmaele M. (): Hedging strategies for energy derivatives. Quantitative Finance, 14, 1725-1737  https://doi.org/10.1080/14697688.2013.836294
 
Mugwagwa Tafadzwa, Ramiah Vikash, Naughton Tony, Moosa Imad (2012): The efficiency of the buy-write strategy: Evidence from Australia. Journal of International Financial Markets, Institutions and Money, 22, 305-328  https://doi.org/10.1016/j.intfin.2011.10.001
 
Odilon José de O.N., Fabio Gallo G. (2014): La efectividad de cross hedging para el novillo uruguayo en el mercado de futuros del buey gordo brasileño: Hipótesis de la expectativa y especulación sobre la base. (The cross hedging for the Uruguayan steer in the future market of the Brazilian live cattle: The expectancy hypothesis and speculation on the basis.) Agroalimentaria, 20: 87–105.
 
Sanda Gaute Egeland, Olsen Eirik Tandberg, Fleten Stein-Erik (2013): Selective hedging in hydro-based electricity companies. Energy Economics, 40, 326-338  https://doi.org/10.1016/j.eneco.2013.06.018
 
Santa-Clara Pedro, Saretto Alessio (2009): Option strategies: Good deals and margin calls. Journal of Financial Markets, 12, 391-417  https://doi.org/10.1016/j.finmar.2009.01.002
 
Shields D.A. (2012): Risk management tools for dairy farmers. In: U.S. Dairy Farming and Demand: Policies and Economics. Nova Science Publishers: 37–59.
 
Šoltés M. (2010): Relationship of speed certificates and inverse vertical ratio call back spread option strategy. E+M Ekonomie a Management, 13: 119–124.
 
Šoltés Michal (2012): New Option Strategy and Its Using for Investment Certificate Issuing. Procedia Economics and Finance, 3, 199-203  https://doi.org/10.1016/S2212-5671(12)00140-2
 
Šoltés V., Amaitiek O.F.S. (2010): Inverse vertical ratio put spread strategy and its application in hedging against a price drop. Journal of Advanced Studies in Finance, 1: 100–107.
 
Šoltés V. (2011): The application of the Long and Short Combo option strategies in the building of structured products. In: Proceedings Liberec Economic Forum 2011, Technical University of Liberec, Liberec, Sept 19–20: 481–487.
 
Taušer J., Čajka R. (2014): Hedging techniques in commodity risk management. Agricultural Economics – Czech, 60: 174–182.
 
Zmeškal Z. (2004): Přístupy k eliminaci finančních rizik na bázi finančních hedgingových strategií. (Hedging strategies and financial risks.) Czech Journal of Economics and Finance, 54: 50–63.
 
download PDF

© 2021 Czech Academy of Agricultural Sciences | Prohlášení o přístupnosti