• Environmental and Resource Economics Review
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• v.18 no.1
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• pp.139-158
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• 2009

With the sample of Middle East crude oil imported to South Korea, this study empirically analyzes the effectiveness of the risk management strategies using derivatives such as futures and options. Assuming the hedging period of one to twelve months, it considers a spot purchasing strategy, 1 : 1 futures hedge strategy, OLS-based minimum-variance futures hedge strategy, buying call option strategy, and collar transaction strategy. According to the ex-ante result, using the derivatives of futures or options makes lower the procurement costs when the crude oil prices is increasing. With the hedging period less than or equal to six months, the hedging strategy using futures turns out to be superior in terms of procurement cost reduction and hedging effectiveness improvement. In contrast, the hedging strategies of buying call option and collar transaction would generate better results when the hedging program last over six months.

• Journal of the Korean Mathematical Society
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• v.41 no.3
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• pp.513-533
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• 2004

We present the pricing and hedging method for options with general payoffs in the presence of transaction costs. The convexity of the payoff function-gamma of the options- is an important issue under transaction costs. When the payoff function is convex, Leland-style pricing and hedging method still works. However, if the payoff function is of general form, additional assumptions on the size of transaction costs or of the hedging interval are needed. We do not assume that the payoff is convex as in Leland 〔11〕 and the value of the Leland number is less (bigger) than 1 as in Hoggard et al. 〔10〕, Avellaneda and Paras 〔1〕. We focus on generally recognized asymmetry between the option sellers and buyers. We decompose an option with general payoff into difference of two options each of which has a convex payoff. This method is consistent with a scheme of separating out the seller's and buyer's position of an option. In this paper, we first present a simple linear valuation method of general payoff options, and also propose in the last section more efficient hedging scheme which costs less to hedge options.

• English Language & Literature Teaching
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• v.16 no.4
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• pp.91-106
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• 2010

This study examines the use of hedges in cross-cultural communication between EFL learners in an e-learning environment. The study analyzes the use of hedges in a corpus of an interactive web with a bulletin board system through which college students of English at Japanese and Korean universities interacted with each other discussing the topics of local and global issues. It compares the use of hedges in the students' corpus to that of a native English speakers' corpus. The result shows that EFL learners tend to use relatively smaller number of hedges than the native speakers in terms of the frequencies of the total tokens. It further reveals that the learners' overuse of a single versatile high-frequency hedging item, I think, results in relative underuse of other hedging devices. This indicates that due to their small repertoire of hedges, EFL learners' overuse of a limited number of hedging items may cause their speech or writing to become less competent. Based on the result and interviews with the learners, the study also argues that hedging should be understood in its social contexts and should not be understood just as a lack of conviction or a mark of low proficiency. Suggestions were made for using computer corpora in understanding EFL learners' language difficulties and helping them develop communicative and pragmatic competence.

• Journal of applied mathematics & informatics
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• v.23 no.1_2
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• pp.293-310
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• 2007

Recently a risk measure pricing and hedging is replacing a utility-based maximization problem in the literature. In this paper, we treat the optimal problem of risk measure pricing and hedging in the friction market, i.e. in the presence of transaction costs. The risk measure pricing is also verified with the contexts in the literature.

• Management Science and Financial Engineering
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• v.17 no.2
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• pp.99-129
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• 2011

This paper analytically studies how to choose hedging instrument for firms with steady operating cash flows from value maximization perspective. I derive a formula to determine option's optimal strike that makes hedged cash flow have the best monetary payoff given a hedger's view on the underlying asset. I find that not only the expected mean but also the expected standard deviation of the underlying asset in relation to the forward price and the implied volatility play a crucial role in making optimal hedging decision. Higher moments play a certain part in hedging decision but to a lesser degree.

• Journal of the Korean Operations Research and Management Science Society
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• v.29 no.2
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• pp.45-57
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• 2004

The purpose of this paper is studying the valuation of option prices in Incomplete markets. A market is said to be incomplete if the given traded assets are insufficient to hedge a contingent claim. This situation occurs, for example, when the underlying stock process follows jump-diffusion processes. Due to the jump part, it is impossible to construct a hedging portfolio with stocks and riskless assets. Contrary to the case of a complete market in which only one equivalent martingale measure exists, there are infinite numbers of equivalent martingale measures in an incomplete market. Our research here is focusing on risk minimizing hedging strategy and its associated minimal martingale measure under the jump-diffusion processes. Based on this risk minimizing hedging strategy, we characterize the dynamics of a risky asset and derive the valuation formula for an option price. The main contribution of this paper is to obtain an analytical formula for a European option price under the jump-diffusion processes using the minimal martingale measure.

• Communications of the Korean Mathematical Society
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• v.13 no.2
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• pp.367-375
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• 1998

In this paper, we present the close solution for minimal hedging portofolis $II^*$ when payment f for American option admits the integral option.

• The Korean Journal of Financial Management
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• v.26 no.3
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• pp.227-246
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• 2009

This study examines the dynamic hedging performances of the Black-Scholes model and Heston model when stock prices drift with stochastic volatilities. Using Monte Carlo simulations, stock prices consistent with Heston's(1993) stochastic volatility option pricing model are generated. In this circumstance, option traders are assumed to use the Black- Scholes model and Heston model to implement dynamic hedging strategies for the options written. The results of simulation indicate that the hedging performance of a mis-specified Black-Scholes model is almost as good as that of a fully specified Heston model. The implication of these results is that the efficacy of the dynamic hedging performances on evaluating the specifications of alternative option models can be limited.

• Journal of Korea Water Resources Association
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• v.42 no.8
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• pp.643-657
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• 2009

The major reason to construct large dams is to store surplus water during rainy seasons and utilize it for water supply in dry seasons. Reservoir storage has to meet a pre-defined target to satisfy water demands and cope with a dry season when the availability of water resources are limited temporally as well as spatially. In this study, a Hedging rule that reduces total reservoir outflow as drought starts is applied to alleviate severe water shortages. Five stages for reducing outflow based on the current reservoir storage are proposed as the Hedging rule. The objective function is to minimize the total discrepancies between the target and actual reservoir storage, water supply and demand, and required minimum river discharge and actual river flow. Mixed Integer Linear Programming (MILP) is used to develop a multi-reservoir operation system with the Hedging rule. The developed system is applied for the Han River basin that includes four multi-purpose dams and one water supplying reservoir. One of the fours dams is primarily for power generation. Ten-day-based runoff from subbasins and water demand in 2003 and water supply plan to water users from the reservoirs are used from "Long Term Comprehensive Plan for Water Resources in Korea" and "Practical Handbook of Dam Operation in Korea", respectively. The model was optimized by GAMS/CPLEX which is LP/MIP solver using a branch-and-cut algorithm. As results, 99.99% of municipal demand, 99.91% of agricultural demand and 100.00% of minimum river discharge were satisfied and, at the same time, dam storage compared to the storage efficiency increased 10.04% which is a real operation data in 2003.

• Journal of Environmental Policy
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• v.12 no.4
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• pp.93-117
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• 2013

We analyze the optimal hedge ratio and hedge effectiveness with different periodic times between spot and futures on EUA and CER based on EU-ETS. The Main finding are as follows. The first, hedging model which considers the time-varying variance is not more accurate than non-time-varying hedging models. The second, optimal hedge ratios are different even though hedge effectiveness is similar for the hedging purpose. The third, hedge effectiveness has uncertainty if hedge period is short. In case of EUA it needs to over 6 weeks and CER needs to over 7 weeks. The fourth, cross hedge with CER futures is not suitable for profit ratios.