• Korean Management Science Review
• /
• v.31 no.1
• /
• pp.49-61
• /
• 2014

We investigate the hedging effectiveness of incorporating single-stock futures into the corresponding stocks. Investing in only stocks frequently causes too much risk when market volatility suddenly rises. We found that single-stock futures help reduce the variance and risk levels of the corresponding stocks invested. We use daily prices of Korean stocks and their corresponding futures for the time period from December 2009 to August 2013 to test the hedging effect. We also use system trading technique that uses automatic trading program which also has several simulation functions. Moving average strategy, Stochastic's strategy, Larry William's %R strategy have been considered for hedging strategy of the futures. Hedging effectiveness of each strategy was analyzed by percent reduction in the variance between the hedged and the unhedged variance. The results clearly showed that examined hedging strategies reduce price volatility risk compared to unhedged portfolio.

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

• Environmental and Resource Economics Review
• /
• v.26 no.4
• /
• pp.499-517
• /
• 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.

• Journal of Applied and Pure Mathematics
• /
• v.4 no.5_6
• /
• pp.287-297
• /
• 2022

In this paper, we consider a risk-minimization hedging problem for a special European contingent claims. The existence and uniqueness of strategy are given constructively. Firstly, a non-standard European contingent is demonstrated as stochastic payment streams. Then the existence of the risk minimization strategy and also the uniqueness are proved under two kinds market information by using Galtchouk-Kunita-Watanabe decomposition and constructing a 0-achieving strategy risk-minimizing strategies in full information. And further, we have proven risk-minimizing strategies exists and is unique under restrict information by constructing a weakly mean-selffinancing strategy.

• English Language & Literature Teaching
• /
• v.13 no.1
• /
• pp.47-66
• /
• 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.

• Environmental and Resource Economics Review
• /
• v.16 no.4
• /
• pp.855-872
• /
• 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.

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

• Korea Trade Review
• /
• v.47 no.2
• /
• pp.103-120
• /
• 2022

This paper studies the possibility of options as an instrument for central bank to intervene foreign exchange market. As opposed to spot transaction or forward transaction, which impacts spot exchange rate only once, currency options can continuously resist a directional speculative pressure on spot market due to the dynamic delta hedging of OTC currency options market maker. This research also analyzes whether and how central banks can use currency options to lower exchange rate volatility and maintain (implicit) target zones in foreign exchange markets. It argues that short position rather than long position in options will result in market makers dynamically hedging their long option exposure in a stabilizing manner, consistent with the first objective. Selling a "Strangle" allows a central bank to increase the credibility of its commitment to a target zone, and could have a lower expected cost than spot market interventions. However, this strategy also exposes the central bank to an unlimited loss potential. Therefore these kinds of intervention strategies must be used in the short run and temporarily.

• Journal of Korea Trade
• /
• v.26 no.3
• /
• pp.45-62
• /
• 2022

Purpose - Using unexpected changes in geopolitical tensions on the Korean peninsula as a quasi-natural experimental setting, we examine whether and how geopolitical risks travel across borders through firm-level imports and exports linkages. We also test whether the effects are driven by either imports or exports and assess whether firms can effectively hedge themselves against geopolitical risks. Design/methodology - We focus on a series of unanticipated geopolitical events taken place in Korea in 2018. Making use of the shocks to geopolitical climate, we identify five milestone events toward peace talks. We employ the event studies methodology. We examine heterogenous firm-level stock price reactions around key event dates depending on firms' exposure to geopolitical risks. As a measure of firms' exposure to geopolitical risks in Korea, we utilize a text-based measure of firm-level trade links. When a firm announces and discusses its purchase of inputs from Korea or sales of outputs to Korea in their annual disclosure filings, we define a firm to have a trade relationship with Korea and have exposure to Korean geopolitical risks. Similarly, we use a measure of a firm's hedging policies based on a firm's textual mention of the use of foreign exchange derivatives in their annual disclosure. Findings - We find that U.S. firms that have direct trade links to Korea gained significantly more value when the intensity of geopolitical risks drops compared to firms without such trade links to Korea. The effects are pronounced for firms purchasing inputs from or selling outputs to Korea. We find that the effectiveness of foreign exchange hedging against geopolitical risks is limited. Originality/value - We document the international transmission of geopolitical uncertainty through trade linkages. Export links as well as import links serve as important nexus of transmission of geopolitical risks across borders. Hedging strategies involving foreign-exchanges derivatives do not seem to insulate firms again geopolitical risks. With the recent movements of localization and reshuffling of the global value chain, our results suggest a significant impact of geopolitical risks in Korea on the construction of the global value chain.

• Journal of Electrical Engineering and Technology
• /
• v.13 no.6
• /
• pp.2236-2244
• /
• 2018

We make optimal consecutive offer curves for an energy storage system (ESS) integrated wind power producer (WPP) in the co-optimized day-ahead energy and regulation markets. We build the offer curves by solving multi-stage stochastic optimization (MSSO) problems based on the scenarios of pairs consisting of real-time price and wind power forecasts through the progressive hedging method (PHM). We also use the rolling horizon method (RHM) to build the consecutive offer curves for several hours in chronological order. We test the profitability of the offer curves by using the data sampled from the Iberian Peninsula. We show that the offer curves obtained by solving MSSO problems with the PHM and RHM have a higher profitability than offer curves obtained by solving deterministic problems.