Microeconomic Risk Management and Macroeconomic Stability (eBook)

Andreas Röthig (Autor)

eBook Download: PDF

2009 | 2009
XVI, 144 Seiten
Springer Berlin (Verlag)
978-3-642-01565-6 (ISBN)

Infos

'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.

Inhalt

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

Produkt-Details

• Erscheint lt. Verlag: 2.8.2009
• Reihe/Serie: Lecture Notes in Economics and Mathematical Systems
• Reihe/Serie: Lecture Notes in Economics and Mathematical Systems
• Zusatzinfo: XVI, 144 p. 49 illus., 5 illus. in color.
• Verlagsort: Berlin
• Sprache: englisch
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Unternehmensführung / Management
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre
• Schlagworte: Arbitrage • Currency Crises • Economic Stability • Futures Markets • Hedging • Hedging and Risk Management • Speculation
• ISBN-10: 3-642-01565-4 / 3642015654
• ISBN-13: 978-3-642-01565-6 / 9783642015656