𝔖 Bobbio Scriptorium
✦   LIBER   ✦

Risk management with options and futures under liquidity risk

✍ Scribed by Axel F. A. Adam-Müller; Argyro Panaretou

Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
367 KB
Volume
29
Category
Article
ISSN
0270-7314

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

Futures hedging creates liquidity risk through marking to market. Liquidity risk matters if interim losses on a futures position have to be financed at a markup over the risk‐free rate. This study analyzes the optimal risk management and production decisions of a firm facing joint price and liquidity risk. It provides a rationale for the use of options on futures in imperfect capital markets. If liquidity risk materializes, the firm sells options on futures in order to partly cover this liquidity need. It is shown that liquidity risk reduces the optimal hedge ratio and that options are not normally used before a liquidity need actually arises. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:297–318, 2009

📜 SIMILAR VOLUMES

Liquidity risk and the hedging role of o
Liquidity risk and the hedging role of options
✍ Kit Pong Wong; Jianguo Xu 📂 Article 📅 2006 🏛 John Wiley and Sons 🌐 English ⚖ 171 KB 👁 1 views

This study examines the impact of liquidity risk on the behavior of the competitive firm under price uncertainty in a dynamic two-period setting. The firm has access to unbiased one-period futures and option contracts in each period for hedging purposes. A liquidity constraint is imposed on the firm

Hedging in Futures and Options Markets w
Hedging in Futures and Options Markets with Basis Risk
✍ Olivier Mahul 📂 Article 📅 2002 🏛 John Wiley and Sons 🌐 English ⚖ 116 KB 👁 2 views

## Abstract This paper analyzes the hedging decisions for firms facing price and basis risk. Two conditions assumed in most models on optimal hedging are relaxed. Hence, (i) the spot price is not necessarily linear in both the settlement price and the basis risk and (ii) futures contracts and optio

Futures hedging under mark-to-market ris
Futures hedging under mark-to-market risk
✍ Donald Lien; Anlong Li 📂 Article 📅 2003 🏛 John Wiley and Sons 🌐 English ⚖ 91 KB 👁 2 views

## Abstract This article introduces mark‐to‐market risk into the conventional futures hedging framework. It is shown that a hedger concerned with maximum daily loss will considerably reduce his futures position when the risk is taken into account. In case of a moderate hedge horizon, the hedger wil

Social risk management options for medic
Social risk management options for medical care in Indonesia
✍ Menno Pradhan; Nicholas Prescott 📂 Article 📅 2002 🏛 John Wiley and Sons 🌐 English ⚖ 227 KB 👁 1 views

This paper investigates the extent to which price subsidies for medical care are a suitable instrument to reduce household's exposure to catastrophic financial risks associated with ill-health in Indonesia. Using the 1995 SUSENAS household survey, the observed distribution of user fees and health ex