Browsing by Subject "hedging"
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Item Essays in financial economics and risk management(2009-05-15) Zou, LinItem Essays on the workings and uses of futures markets(Texas A&M University, 2004-09-30) Bryant, Henry L., IVThis dissertation investigates various issues of interest regarding the workings and uses of commodity futures markets. Chapter II evaluates the relative performances of various estimators of bid-ask spreads in futures markets using commonly available transaction data. Results indicate a wide divergence in the performance of the competing estimators. This chapter also examines the effect of automating trading on spreads in commodity futures markets. Results indicate that spreads generally widened after trading was automated on the markets considered, and the tendency for spreads to widen during periods of high volatility increased. These results are in contrast to those found in higher volume financial futures markets. Chapter III investigates various unresolved issues regarding futures markets, using formal methods appropriate for inferring causal relationships from observational data when some relevant quantities are hidden. I find no evidence supporting the generalized version of Keynes's theory of normal backwardation. I find no evidence supporting theories that predict that the level of activity of speculators or uninformed traders affects the level of price volatility, either positively or negatively. My evidence strongly supports the mixture of distribution hypothesis (MDH) that trading volume and price volatility have one or more latent common causes, resulting in their positive correlation. Chapter IV examines partial equilibrium and statistical approaches to hedging. Different types of hedgers have traditionally used each of two approaches: derivatives dealers and market makers have typically used the former approach to hedge their portfolios, while commodity producers and consumers more commonly use the latter. This research provides the first known comparison of the out-of-sample hedging performance of the two approaches. Results indicate that for a simple derivative with a linear payoff function (a futures contract), the statistical models significantly outperform the partial equilibrium models considered here.Item Mitigating cotton revenue risk through irrigation, insurance, and/or hedging(2009-05-15) Bise, Elizabeth HartTexas is the leading U.S. producer of cotton, and the U.S. is the largest international market supplier of cotton. Risks and uncertainties plague Texas cotton producers with unpredictable weather, insects, diseases, and price variability. Risk management studies have examined the risk reducing capabilities of alternative management strategies, but few have looked at the interaction of using several strategies in different combinations. The research in this study focuses on managing risk faced by cotton farmers in Texas using irrigation, put options, and yield insurance. The primary objective was to analyze the interactions of irrigation, put options, and yield insurance as risk management strategies on the economic viability of a 1,000 acre cotton farm in the Lower Rio Grande Valley (LRGV) of Texas. The secondary objective was to determine the best combination of these strategies for decision makers with alternative preferences for risk aversion. Stochastic values for yields and prices were used in simulating a whole-farm financial statement for a 1000 acre furrow irrigated cotton farm in the LRGV with three types of risk management strategies. Net returns were simulated using a multivariate empirical distribution for 16 risk management scenarios. The scenarios were ranked across a range of risk aversion levels using stochastic efficiency with respect to a function. Analyses for risk averse decision makers showed that multiple irrigations are preferred, and that yield insurance is strongly preferred at lower irrigation levels. The benefits to purchasing put options increase with yields, so they are more beneficial when higher yields are expected from applying more irrigation applications.