Röthig Microeconomic Risk Management and Macroeconomic Stability

2009
ISBN: 978-3-642-01565-6
Verlag: Springer
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, Band 625, 144 Seiten

Reihe: Lecture Notes in Economics and Mathematical Systems

'The essence of a hedging contract is a coincident purchase and sale in two markets which are expected to behave in such a way that any loss realized in one will be offset by an equivalent gain in the other. If such behavior follows a perfect hedge has been effected. ' Hardy and Lyon (1923, p. 276). 1. 1 LiteratureReviewandMotivation In the traditional hedging literature, the two markets in which hedgers trade are spot and futures markets. The trader's position in the spot market is generally considered as given. According to Johnson (1960), hedging can be meaningfully de?ned only if the spot market is regarded as the trader's primary market. The futures market is used solely to counterbalance an existing position in the spot market. Speculators, in contrast, do not have a commitment in the spot market. They take on risk in futures markets in order to pro?t from expected price changes. The hedger synchronizes his trading activities in spot and futures markets in order to reduce spot risk. In the lit- ature this approach to hedging is labeled risk reduction concept. Risk reduction will be achieved if spot and futures prices move more or less in parallel. If prices are p- fectly correlated, risk is abolished, since losses in one market are perfectly offset by pro?ts in the other market. However, as Hardy and Lyon (1923) point out, any div- gence from perfect correlation results in an imperfect hedge.

Autoren/Hrsg.

Röthig, Andreas

Inhaltsverzeichnis

1;Contents;7
2;List of Figures;10
3;Part I Preliminary Explorations;13
3.1;1 Introduction;14
3.1.1;1.1 Literature Review and Motivation;14
3.1.1.1;1.1.1 Why Should Firms Hedge?;15
3.1.1.2;1.1.2 How Much Do Firms Hedge?;18
3.1.2;1.2 Outline;20
4;Part II A Micro View: Optimal Risk Management;23
4.1;2 Backwardation and Optimal Hedging Demand in an Expected Utility Hedging Model;24
4.1.1;2.1 Introduction;24
4.1.2;2.2 The Expected Utility Hedging Model;26
4.1.2.1;2.2.1 Optimal Long Hedging;26
4.1.2.2;2.2.2 Hedging Costs and Optimal Hedging;29
4.1.3;2.3 Empirical Investigation;30
4.1.3.1;2.3.1 Data and Summary Statistics;30
4.1.3.2;2.3.2 Vector Autoregression and Vector Error Correction Analysis;33
4.1.4;2.4 Discussion;39
4.2;3 Mean-Variance Versus Minimum-Variance Hedging;40
4.2.1;3.1 Introduction;40
4.2.2;3.2 The Mean-Variance Approach to Hedging;41
4.2.2.1;3.2.1 The Model;41
4.2.2.2;3.2.2 Optimal Hedging;42
4.2.2.3;3.2.3 Pure Hedging and Speculative Demand;47
4.2.2.4;3.2.4 The Value of the Futures Market;50
4.2.3;3.3 Minimum-Variance Hedging and Hedging Effectiveness;51
4.2.3.1;3.3.1 Deriving the Pure Hedge;51
4.2.3.2;3.3.2 Hedging Effectiveness and Correlation;53
4.2.3.3;3.3.3 Optimal Hedge Ratios by Linear Regression;54
4.2.4;3.4 Discussion;56
5;Part III A Macro View: Economic Stability;58
5.1;4 Corporate Risk Management in Balance-Sheet Triggered Currency Crises;59
5.1.1;4.1 Introduction;59
5.1.2;4.2 The Basic Mundell–Fleming–Tobin Model;61
5.1.2.1;4.2.1 The Goods Market;61
5.1.2.2;4.2.2 The Financial Markets;64
5.1.2.3;4.2.3 The Multiple Equilibria MFT Model;65
5.1.3;4.3 Linear Hedging and Speculation in the MFT Model;66
5.1.3.1;4.3.1 The Hedging Methodology and the Investment Function;66
5.1.3.2;4.3.2 Speculation and the Investment Function;70
5.1.3.3;4.3.3 Simulation of the Basic Model;71
5.1.3.4;4.3.4 Simulation of Hedging Activity;72
5.1.3.5;4.3.5 Simulation of Speculation;73
5.1.3.6;4.3.6 The Role of Trading Costs: Forwards Versus Futures;74
5.1.4;4.4 A Nonlinear Hedging Strategy Using Options;81
5.1.4.1;4.4.1 Options Hedging and Investment;81
5.1.4.2;4.4.2 Simulation of Options Hedging;84
5.1.4.3;4.4.3 Linear Versus Nonlinear Hedging Strategies;86
5.1.5;4.5 Economic Implications;89
5.1.5.1;4.5.1 Corporate Hedging and Economic Stability;89
5.1.5.2;4.5.2 Capital Flight and Private Asset Allocation;91
5.1.6;4.6 Discussion;94
5.2;5 Arbitrage Pressure, Positive Feedback Speculation, Selective Hedging, and Economic Stability: An Empirical Analysis and Catastrophe Modelling;95
5.2.1;5.1 Introduction;95
5.2.2;5.2 Arbitrage Pressure and Noise Trading;97
5.2.2.1;5.2.1 Arbitrage with Transaction Costs;97
5.2.2.2;5.2.2 Arbitrage with Holding Costs;99
5.2.2.3;5.2.3 Noise, Positive Feedback Trading, and Herding;100
5.2.3;5.3 Vector Autoregression Analysis of Futures Trading Activity;102
5.2.3.1;5.3.1 Data;102
5.2.3.2;5.3.2 Speculation Versus Hedging;103
5.2.3.3;5.3.3 Long Versus Short Speculation;105
5.2.4;5.4 Logistic Smooth Transition Regression Analysis of Long Speculation;106
5.2.4.1;5.4.1 The LSTR Model;110
5.2.4.2;5.4.2 Testing Linearity Against LSTR;110
5.2.4.3;5.4.3 Estimation Results;111
5.2.4.3.1;5.4.3.1 AUD – Speculation Dynamics;111
5.2.4.3.2;5.4.3.2 CHF – Speculation Dynamics;114
5.2.4.3.3;5.4.3.3 EUR – Speculation Dynamics;115
5.2.4.3.4;5.4.3.4 JPY – Speculation Dynamics;117
5.2.4.3.5;5.4.3.5 MXP – Speculation Dynamics;119
5.2.4.4;5.4.4 Misspecification Tests;120
5.2.5;5.5 A Catastrophe Theory Approach;121
5.2.5.1;5.5.1 The Cusp Catastrophe Model and Underlying Hypotheses;123
5.2.5.2;5.5.2 The Chain of Events;124
5.2.6;5.6 Discussion;126
5.3;6 Conclusions;128
6;A A Geometric Approach to the Hedgers' Surplus;131
7;B Stability Analysis;133
8;C The Computation of the Catastrophe Surface;137
9;Bibliography;139