• Title/Summary/Keyword: hedging

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Profit Margin Hedging Strategy in Crude Oil Purchasing (이윤율헤징을 이용한 원유 구매 전략)

  • Yang, Ji Hye;Kim, Hyun Seok
    • Environmental and Resource Economics Review
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    • v.26 no.4
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    • pp.499-517
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    • 2017
  • The purpose of this article is to show profit margin hedging can be an optimal strategy in crude oil purchasing. This study theoretically analyzes profit margin hedging strategy is optimal in crude oil purchasing using expected target utility function and conducts simulations to show if the profit margin hedging is profitable. In addition, this study tests existence of mean reversion of crude oil futures prices to confirm the theory that profit margin hedging is more profitable than other strategies, such as always hedging or buying at expiration with spot price, if futures prices are mean reverting. The simulation results show that the expected utility of profit margin hedging higher than other strategies. Although we cannot find any evidence that crude oil futures prices follow mean reverting process, we can conclude that profit margin hedging can be optimal strategy in crude oil purchasing based on theoretical proof and simulation results.

A Study on Error Analysis & Hedging Expressions of Medical Research Abstracts

  • Lee, Eun-Pyo
    • English Language & Literature Teaching
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    • v.13 no.1
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    • pp.47-66
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    • 2007
  • Error analysis plays an important role because understanding the types of errors can give a better opportunity for both teachers and learners to recognize the nature of errors and ways of preventing them. This study looks into errors in the medical research abstracts written by 26 Koreans and also examines hedging expressions since hedging can be a necessary tactic in which the validity and objectivity of their claims is conveyed. The hedging expressions of these research abstracts are to be compared with those of Hyland (1996)'s study done on ENL academic writers of cell and molecular biology. The results of the study reveal that wrong word choice was the most commonly occurred errors, followed by prepositions, articles, adding and missing words. Many of these errors, except articles, seemed to derive from the native language interference. There were also run-on sentences, subject & verb agreement, tense, word order and minor errors. As for hedging, ESL medical writers seemed to use very limited hedging expressions and inappropriately strong modals. It is recommended to take variations of hedges using epistemic adverbials and adjectives to present their claims in a more valid and polite way. Limited verb choice was also noted. As for preventing or minimizing similar future errors, collocation practices in ESP focused on commonly used medical related words and expressions can be effective.

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A Methodology for Hedging Equity Linked Warrant Using Artificial Neural Network (인공신경망을 이용한 주식워런트증권(ELW)의 헤징 방안)

  • Ryu, Jae-Pil;Shin, Hyun-Joon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.13 no.3
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    • pp.1091-1098
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    • 2012
  • From the perspective of risk management, financial organization that have issued ELW require an efficient hedging methodology due to recently increased trade volume of ELW. This study presents an ELW hedging methodology using artificial neural network(ANN) to minimize hedging costs. The performance of the presented methodology in this study is examined by analysis utilizing the prices and volatilities of underlying assets, risk free interest rates, and maturities and computational experiments show that the proposed method is superior to existing dynamic delta hedging(DDH) technique in terms of hedging costs ranged from 25% to 250%.

An Option Hedge Strategy Using Machine Learning and Dynamic Delta Hedging (기계학습과 동적델타헤징을 이용한 옵션 헤지 전략)

  • Ru, Jae-Pil;Shin, Hyun-Joon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.12 no.2
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    • pp.712-717
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    • 2011
  • Option issuers generally utilize Dynamic Delta Hedging(DDH) technique to avoid the risk resulting from continuously changing option value. DDH duplicates payoff of option position by adjusting hedge position according to the delta value from Black-Scholes(BS) model in order to maintain risk neutral state. DDH, however, is not able to guarantee optimal hedging performance because of the weaknesses caused by impractical assumptions inherent in BS model. Therefore, this study presents a methodology for dynamic option hedge using artificial neural network(ANN) to enhance hedging performance and show the superiority of the proposed method using various computational experiments.

HEDGING OF OPTION IN JUMP-TYPE SEMIMARTINGALE ASSET MODEL

  • Oh, Jae-Pill
    • Journal of the Korean Society for Industrial and Applied Mathematics
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    • v.13 no.2
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    • pp.87-100
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    • 2009
  • Hedging strategy for European option of jump-type semimartingale asset model, which is derived from stochastic differential equation whose driving process is a jump-type semimartingle, is discussed.

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Analysis on the Procurement Hedging Strategies for Bituminous Coal Considering Multiple Risk Factors (복수의 위험요인을 고려한 유연탄 조달헤징전략 분석)

  • Yun, Won-Cheol;Sonn, Yang-Hoon
    • Environmental and Resource Economics Review
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    • v.16 no.4
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    • pp.855-872
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    • 2007
  • This study suggests an imported coal procurement model that simultaneously considers the risk factors of coal price, ocean freight rate and foreign exchange rate. In addition, it quantitatively analyses the superiority of this model compared to the previous one m terms of procurement cost saving and stabilization. According to the empirical results, a separate hedging could stabilize the procurement cost flow, but this is not the end of story. That is, a complex hedging would reduce the standard deviations of cost flow. Thus, one could improve hedging effects by fully considering the inherent variance-covariance relationship among coal price, ocean freight rate and foreign exchange.

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Study on a Hedging Volatility Depending on Path Type of Underlying Asset Prices (기초자산의 추세 여부에 따른 헤지변동성의 결정에 관한 연구)

  • Koo, Jeongbon;Song, Junmo
    • The Korean Journal of Applied Statistics
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    • v.26 no.1
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    • pp.187-200
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    • 2013
  • In this paper, we deal with the problem of deciding a hedging volatility for ATM plain options when we hedge those options based on geometric Brownian motion. For this, we study the relation between hedging volatility and hedge profit&loss(P&L) as well as perform Monte Carlo simulations and real data analysis to examine how differently hedge P&L is affected by the selection of hedging volatility. In conclusion, using a relatively low hedging volatility is found to be more favorable for hedge P&L when underlying asset prices are expected to be range bound; however, a relatively high volatility is found to be favorable when underlying asset prices are expected to move on a trend.

The Analysis and Comparison of the Hedging Effectiveness for Currency Futures Markets : Emerging Currency versus Advanced Currency (통화선물시장의 헤징유효성 비교 : 신흥통화 대 선진통화)

  • Kang, Seok-Kyu
    • The Korean Journal of Financial Management
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    • v.26 no.2
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    • pp.155-180
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    • 2009
  • This study is to estimate and compare hedging effectiveness in emerging currency and advanced currency futures markets. Emerging currency futures includes Korea won, Mexico peso, and Brazil real and advanced currency futures is Europe euro, British pound, and Japan yen. Hedging effectiveness is measured by comparing hedging performance of the naive hedge model, OLS model, error correction model and constant condintional correlation bivariate GARCH(1, 1) hedge model based on rolling windows. Analysis data is used daily spot and futures rates from January, 2, 2001 to March. 10, 2006. The empirical results are summarized as follows : First, irrespective of hedging period and model, hedging using Korea won/dollar futures reduces spot rate's volatility risk by 97%. Second, Korea won/dollar futures market produces the best hedging performance in emerging and advanced currency futures markets, i.e. Mexico peso, Brazil real, Europe euro, British pound, and Japan yen. Third, there are no difference of hedging effectiveness among hedging models.

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Testing the Valuation Effect of Foreign Exchange Risk Insurance in Korea (환헤지가 기업가치를 높이는가? : 환변동보험의 기업가치 효과)

  • Song, Hong-Sun;Hahn, Sang-Buhm
    • The Korean Journal of Financial Management
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    • v.27 no.2
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    • pp.63-84
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    • 2010
  • We investigate whether FX hedging materially increases firm value by testing the valuation effect of Foreign Exchange Risk Insurance in Korea, using our sample of 84 listed firms with 617 observations between 2000 and 2008, Employing Tobin's Q as a proxy of firm value and foreign exchange risk insurance as a proxy of hedging instrument, we find a positive relation between firm value and the use of foreign exchange risk insurance. The hedging premium is statistically significant and is on average 7.4% of sample firm value. We also find our empirical results consistent with the preceding evidence that firm uses the hedging instrument in order to alleviate economic frictions and then hedging causes an increase in firm value.

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