Exchange rate economic exposure and hedging:the significance of currency options

This thesis focuses on the theoretical examination of the exchange rate economic (operating) exposure within the context of the theory of the firm, and proposes some hedging solutions using currency options. The examination of economic exposure is based on such parameters as firms' objectives, industry structure and production cost efficiency. In particular, it examines an hypothetical exporting firm with costs in domestic currency, which faces competition from foreign firms in overseas markets and has a market share expansion objective. Within this framework, the hypothesis is established that economic exposure, portrayed in a diagram connecting export prices and real exchange rates, is asymmetric (i.e. the negative effects depreciation are higher than the positive effects of a currency depreciation). In this case, export business can be seen as a real option, given by exporting firms to overseas customer. Different scenarios about the asymmetry hypothesis can be derived for different assumptions about the determinants of economic exposure. Having established the asymmetry hypothesis, the hedging against this exposure is analysed. The hypothesis is established, that a currency call option should be used in hedging against asymmetric economic exposure. Further, some advanced currency options stategies are discussed, and their use in hedging several scenarios of exposure is indicated, establishing the hypothesis that, the optimal options strategy is a function of the determinants of exposure. Some extensions on the theoretical analysis are examined. These include the hedging of multicurrency exposure using options, and the exposure of a purely domestic firm facing import competition. The empirical work addresses two issues: the empirical validity of the asymmetry hypothesis and the examination of the hedging effectiveness of currency options.

Hedging under liquidity constraints

Although risk management can be justified by financial distress, the theoretical models usually contain hedging instruments free of funding risk. In practice, management of the counterparty risk in derivative transactions is of enhanced importance, consequently not only is trading on exchanges subject to the presence of a margin account, but also in bilateral (OTC) agreements parties will require margins or collateral from their partners in order to hedge the mark-tomarket loss of the transaction. The aim of this paper is to present and compare two models where the financing need of the hedging instrument also appears, influencing the hedging strategy and the optimal hedging ratio. Both models contain the same source of risk and optimisation criterion, but the liquidity risk is modelled in different ways. In the first model, there is no additional financing resource that can be used to finance the margin account in case of a margin call, which entails the risk of liquidation of the hedging position. In the second model, the financing is available but a given credit spread is to be paid for this, so hedging can become costly.

Experimental and Conceptual Approaches to Studying Bet Hedging in Microorganisms

Bet-hedging strategies are used by organisms to survive in

unpredictable environments. To pursue a bet-hedging strategy, an

organism must produce multiple phenotypes from a single genotype. What

molecular mechanisms allow this to happen? To address this question, I

created a synthetic system that displays bet-hedging behavior, and

developed a new technique called `TrackScar' to measure the fitness

and stress-resistance of individual cells. I found that bet-hedging

can be generated by actively sensing the environment, and that

bet-hedging strategies based on active sensing need not be

metabolically costly. These results suggest that to understand how

bet-hedging strategies are produced, microorganisms must be

examined in the actual environments that they come from.

Planning and operation of large-scale water distribution systems with preemptive priorities

This paper describes the development of an optimization model for the management and operation of a large-scale, multireservoir water supply distribution system with preemptive priorities. The model considers multiobjectives and hedging rules. During periods of drought, when water supply is insufficient to meet the planned demand, appropriate rationing factors are applied to reduce water supply. In this paper, a water distribution system is formulated as a network and solved by the GAMS modeling system for mathematical programming and optimization. A user-friendly interface is developed to facilitate the manipulation of data and to generate graphs and tables for decision makers. The optimization model and its interface form a decision support system (DSS), which can be used to configure a water distribution system to facilitate capacity expansion and reliability studies. Several examples are presented to demonstrate the utility and versatility of the developed DSS under different supply and demand scenarios, including applications to one of the largest water supply systems in the world, the Sao Paulo Metropolitan Area Water Supply Distribution System in Brazil.

Nominal versus indexed debt: A quantitative horse race

The main arguments in favor and against nominal and indexed debts are the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium model with tax distortion, government outlays uncertainty, and contingent-debt service. Our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment. Thus, the benefits of unexpected inflation are tempered by higher interest rates. We obtain that costs from inflation more than offset the benefits from reducing tax distortions. We further discuss sustainability of nominal debt in developing (volatile) countries. (C) 2010 Elsevier Ltd. All rights reserved.

Post-fledging care, philopatry and recruitment in brown thornbills

1. We describe patterns of post-fledging care, dispersal and recruitment in four cohorts of brown thornbills Acanthiza pusilla. We examine what factors influence post-fledging survival and determine how post-hedging care and the timing of dispersal influence the probability of recruitment in this small, pair breeding, Australian passerine. 2. Fledgling thornbills were dependent on their parents for approximately 6 weeks. Male fledglings were more likely than female fledglings to survive until independence. For both sexes, the probability of reaching independence increased as nestling weight increased and was higher for nestlings that fledged later in the season. 3. The timing of dispersal by juvenile thornbills was bimodal. Juveniles either dispersed by the end of the breeding season or remained on their natal territory into the autumn and winter. Juveniles that delayed dispersal were four times more likely to recruit into the local breeding population than juveniles that dispersed early. 4. Delayed dispersal was advantageous because individuals that remained on their natal territory suffered little mortality and tended to disperse only when a local vacancy was available. Consequently, the risk of mortality associated with obtaining a breeding vacancy using this dispersal strategy was low. 5. Males, the more philopatric sex, were far more likely than females to delay dispersal. Despite the apparent advantages of prolonged natal philopatry, however, only 54% of pairs that raised male fledglings to independence had sons that postponed dispersal, and most of these philopatric sons gained vacancies before their parents bred again. Consequently, few sons have the opportunity to help their parents. Constraints on delayed dispersal therefore appear to play a major role in the evolution of pair-breeding in the brown thornbill.

Practices and attitudes to derivatives use in Australian commonwealth organisations

Little is known about risk management in the public sector This study reports on a survey of senior officers in Australian Commonwealth companies and statutory authorities concerning their practice and attitudes towards the use of derivative instruments for risk management. Using a variety of tests, the most important issue identified by respondents concerning the use of derivatives is for budgeting purposes. Of note, respondents rank commonly cited reasons advanced in the private sector such as reduced bankruptcy costs and taxation, as being relatively unimportant, which is consistent with arguments advanced in the paper The results also indicate that there are significant differences in the level of importance in some issues regarding derivatives use across public sector organisations, particularly those differentiated by a documented risk management plan. The study also documents for the first time the extent of derivatives use in the Australian public sector.

The geometric meaning of macroevolution

Although the concept of bet-hedging has been useful in microevolutionary studies for over 25 years, a recent paper by Andrew Simons suggests that it is also applicable to macroevolutionary events, with the same fundamental process of selection working at all temporal scales.

A gestão do risco associado à negociação de energia eléctrica através de contratos bilaterais e mercado spot

Num mercado de electricidade competitivo onde existe um ambiente de incerteza, as empresas de geração adoptam estratégias que visam a maximização do lucro, e a minimização do risco. Neste contexto, é de extrema importância para desenvolver uma estratégia adequada de gestão de risco ter em conta as diferentes opções de negociação de energia num mercado liberalizado, de forma a suportar a tomada de decisões na gestão de risco. O presente trabalho apresenta um modelo que avalia a melhor estratégia de um produtor de energia eléctrica que comercializa num mercado competitivo, onde existem dois mercados possíveis para a transacção de energia: o mercado organizado (bolsa) e o mercado de contratos bilaterais. O produtor tenta maximizar seus lucros e minimizar os riscos correspondentes, seleccionando o melhor equilíbrio entre os dois mercados possíveis (bolsa e bilateral). O mercado de contratos bilaterais visa gerir adequadamente os riscos inerentes à operação de mercados no curto prazo (mercado organizado) e dar o vendedor / comprador uma capacidade real de escolher o fornecedor com que quer negociar. O modelo apresentado neste trabalho faz uma caracterização explícita do risco no que diz respeito ao agente de mercado na questão da sua atitude face ao risco, medido pelo Value at Risk (VaR), descrito neste trabalho por Lucro-em-Risco (PAR). O preço e os factores de risco de volume são caracterizados por um valor médio e um desvio padrão, e são modelizados por distribuições normais. Os resultados numéricos são obtidos utilizando a simulação de Monte Carlo implementado em Matlab, e que é aplicado a um produtor que mantém uma carteira diversificada de tecnologias de geração, para um horizonte temporal de um ano. Esta dissertação está organizada da seguinte forma: o capítulo 1, 2 e 3 descrevem o estado-da-arte relacionado com a gestão de risco na comercialização de energia eléctrica. O capítulo 4 descreve o modelo desenvolvido e implementado, onde é também apresentado um estudo de caso com uma aplicação do modelo para avaliar o risco de negociação de um produtor. No capítulo 5 são apresentadas as principais conclusões.

A long-term risk management tool for electricity markets using swarm intelligence

This paper addresses the optimal involvement in derivatives electricity markets of a power producer to hedge against the pool price volatility. To achieve this aim, a swarm intelligence meta-heuristic optimization technique for long-term risk management tool is proposed. This tool investigates the long-term opportunities for risk hedging available for electric power producers through the use of contracts with physical (spot and forward contracts) and financial (options contracts) settlement. The producer risk preference is formulated as a utility function (U) expressing the trade-off between the expectation and the variance of the return. Variance of return and the expectation are based on a forecasted scenario interval determined by a long-term price range forecasting model. This model also makes use of particle swarm optimization (PSO) to find the best parameters allow to achieve better forecasting results. On the other hand, the price estimation depends on load forecasting. This work also presents a regressive long-term load forecast model that make use of PSO to find the best parameters as well as in price estimation. The PSO technique performance has been evaluated by comparison with a Genetic Algorithm (GA) based approach. A case study is presented and the results are discussed taking into account the real price and load historical data from mainland Spanish electricity market demonstrating the effectiveness of the methodology handling this type of problems. Finally, conclusions are dully drawn.

Os swaps de taxas de juro como instrumentos de cobertura de risco nas demonstrações financeiras

Mestrado em Contabilidade

The impact of financial disclosures in the measurement of notional interest rate swaps in the period of 2007-2012

Mestrado em Contabilidade

Contratos de Futuros sobre Taxas de Juro

Mestrado em Contabilidade Internacional

Cobertura de risco ou especulação? : Evidência da utilização de derivados pelas empresas portuguesas durante a recente crise financeira

Mestrado em Contabilidade