Zu welchem Preis können Versicherer "ineffektive" Risikomanagementinstrumente anbieten? - Zur Analyse der Effizienz von Wetterderivaten -

Seit Mitte der 1990er Jahre werden „Wetterderivate“ als neues Instrument zum Management wetterbedingter Mengenrisiken diskutiert. Im Gegensatz zu schadensbezogenen Versicherungen erfolgt der Hedge bei Wetterderivaten durch an Wetterindizes (Niederschlagssummen, Temperatursummen etc.) gekoppelte Zahlungen, die an einer festgelegten Referenzwetterstation gemessen werden. Im vorliegenden Beitrag wird ein Risk-Programming Ansatz vorgestellt, mit dem die Zahlungsbereitschaft landwirtschaftlicher Unternehmen für Risikomanagementinstrumente im Allgemeinen und Wetterderivate im Speziellen bestimmt werden kann. Dabei wird sowohl das betriebspezifische Risikoreduzierungspotenzial des betrachteten Instruments als auch die individuelle Risikoakzeptanz des Entscheiders berücksichtigt. Die exemplarische Anwendung des Ansatzes auf ein Brandenburger Landwirtschaftsunternehmen zeigt, dass selbst für einen standardisierten Optionskontrakt, der sich auf die an der Wetterstation Berlin-Tempelhof gemessenen Niederschläge bezieht, eine relevante Zahlungsbereitschaft seitens des Landwirts besteht. Diese Zahlungsbereitschaft ist so hoch, dass der Anbieter sogar einen Aufpreis verlangen könnte, der über dem traditioneller Versicherungen liegt. Angesichts der gegenüber schadensbezogenen Versicherungen deutlich geringeren Transaktionskosten deutet dies auf ein erhebliches Handelspotenzial für Wetterderivate hin.

Sampled Control for Mean-Variance Hedging in a Jump Diffusion Financial Market

In this technical note we consider the mean-variance hedging problem of a jump diffusion continuous state space financial model with the re-balancing strategies for the hedging portfolio taken at discrete times, a situation that more closely reflects real market conditions. A direct expression based on some change of measures, not depending on any recursions, is derived for the optimal hedging strategy as well as for the ""fair hedging price"" considering any given payoff. For the case of a European call option these expressions can be evaluated in a closed form.

Separation and hedging results with state-contingent production

A state-contingent model of production under uncertainty is developed and compared with more traditional models of production under uncertainty. Producer behaviour with both production and price risk, in the presence and in the absence of futures and forward markets, is analysed in this state-contingent framework. Conditions for the optimal hedge to be positive or negative are derived. We also show that, under plausible conditions, a risk-averse producer facing price uncertainty and the ability to hedge price risk will never willingly adopt a nonstochastic technology. New separation results, which hold in the presence of both price and production risk, are then developed. These separation results generalize Townsend's spanning results by reducing the number of necessary forward markets by one.

Potential demand for hedging by Australian wheat producers

The potential for hedging Australian wheat with the new Sydney Futures Exchange wheat contract is examined using a theoretical hedging model parametised from previous studies. The optimal hedging ratio for an 'average' wheat farmer was found to be zero under reasonable assumptions about transaction costs and based on previously published measures of risk aversion. The estimated optimal hedging ratios were found by simulation to be quite sensitive to assumptions about the degree of risk aversion. If farmers are significantly more risk averse than is currently believed, then there is likely to be an active interest in the new futures market.

A hedging point strategy - balancing effluent quality, economy and robustness in the control of wastewater treatment plants

An operational space map is an efficient tool to compare a large number of operational strategies to find an optimal choice of setpoints based on a multicriterion. Typically, such a multicriterion includes a weighted sum of cost of operation and effluent quality. Due to the relative high cost of aeration such a definition of optimality result in a relatively high fraction of the effluent total nitrogen in the form of ammonium. Such a strategy may however introduce a risk into operation because a low degree of ammonium removal leads to a low amount of nitrifiers. This in turn leads to a reduced ability to reject event disturbances, such as large variations in the ammonium load, drop in temperature, the presence of toxic/inhibitory compounds in the influent etc. Hedging is a risk minimisation tool, with the aim to "reduce one's risk of loss on a bet or speculation by compensating transactions on the other side" (The Concise Oxford Dictionary (1995)). In wastewater treatment plant operation hedging can be applied by choosing a higher level of ammonium removal to increase the amount of nitrifiers. This is a sensible way to introduce disturbance rejection ability into the multi criterion. In practice, this is done by deciding upon an internal effluent ammonium criterion. In some countries such as Germany, a separate criterion already applies to the level of ammonium in the effluent. However, in most countries the effluent criterion applies to total nitrogen only. In these cases, an internal effluent ammonium criterion should be selected in order to secure proper disturbance rejection ability.

Vietnam's strategic hedging vis-à-vis China: the roles of the European Union and Russia

Against the backdrop of China's assertive policies in the South China Sea, the present study evaluates how Vietnam has sought to mitigate the increasingly unequal regional power distribution vis-à-vis China. It argues that Vietnam tends to cope with China mainly by engaging itself in hedging strategies on the basis of diversified and strong relationships with different players. Appraising the roles of Russia and the European Union (EU), the study analyzes the pay-offs of Vietnam's military hedging with Russia and its economic hedging with the EU.

A decision-support system based on particle swarm optimization for multiperiod hedging in electricity markets

This paper proposes a particle swarm optimization (PSO) approach to support electricity producers for multiperiod optimal contract allocation. The producer risk preference is stated by a utility function (U) expressing the tradeoff between the expectation and variance of the return. Variance estimation and expected return are based on a forecasted scenario interval determined by a price range forecasting model developed by the authors. A certain confidence level is associated to each forecasted scenario interval. The proposed model makes use of contracts with physical (spot and forward) and financial (options) settlement. PSO performance was evaluated by comparing it with a genetic algorithm-based approach. This model can be used by producers in deregulated electricity markets but can easily be adapted to load serving entities and retailers. Moreover, it can easily be adapted to the use of other type of contracts.

A long-term swarm intelligence hedging tool applied to electricity markets

This paper proposes a swarm intelligence long-term hedging tool to support electricity producers in competitive electricity markets. This tool investigates the long-term hedging opportunities available to electric power producers through the use of contracts with physical (spot and forward) and financial (options) settlement. To find the optimal portfolio the producer risk preference is stated by a utility function (U) expressing the trade-off between the expectation and the variance of the return. Variance estimation and the expected return are based on a forecasted scenario interval determined by a long-term price range forecast model, developed by the authors, whose explanation is outside the scope of this paper. The proposed tool makes use of Particle Swarm Optimization (PSO) and its performance has been evaluated by comparing it with a Genetic Algorithm (GA) based approach. To validate the risk management tool a case study, using real price historical data for mainland Spanish market, is presented to demonstrate the effectiveness of the proposed methodology.

Hedging in a discontinuous market: the barrier option

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Dynamic delta hedging of autocallables under a discrete rebalancing context

This work tests different delta hedging strategies for two products issued by Banco de Investimento Global in 2012. The work studies the behaviour of the delta and gamma of autocallables and their impact on the results when delta hedging with different rebalancing periods. Given its discontinuous payoff and path dependency, it is suggested the hedging portfolio is rebalanced on a daily basis to better follow market changes. Moreover, a mixed strategy is analysed where time to maturity is used as a criterion to change the rebalancing frequency.

Impact of Black-Scholes assumptions on Delta Hedging

In this work we are going to evaluate the different assumptions used in the Black- Scholes-Merton pricing model, namely log-normality of returns, continuous interest rates, inexistence of dividends and transaction costs, and the consequences of using them to hedge different options in real markets, where they often fail to verify. We are going to conduct a series of tests in simulated underlying price series, where alternatively each assumption will be violated and every option delta hedging profit and loss analysed. Ultimately we will monitor how the aggressiveness of an option payoff causes its hedging to be more vulnerable to profit and loss variations, caused by the referred assumptions.