Browsing by Subject "Hedging (Finance)"
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Item Price hedging and its value to gold producing companies(1994) Franks, Richard Lee, 1963-; Parrino, Robert, 1957-; Van Rensburg, W. C. J.Gold price volatility has created a market for securities based on gold price. This liquid market has afforded gold company managers an opportunity to hedge, or reduce, the risk arising from gold price movements. Typical price hedging instruments include forward sales contracts, futures contracts, options, and gold loans. The question addressed in this thesis is whether price hedging adds value to companies using it. Several areas are identified where hedging might have some effect on company value. They include cost of capital, operating costs, and investment decision making. Of these, the cost of capital appears to be most important. Hedging may result in cheaper debt, but some evidence indicates that the investor's required rate of return as calculated by the CAPM and beta is increased by hedging. If the CAPM holds, the company's market value could be reduced. The result is that companies evaluating an existing hedging policy or those considering implementing a policy have to determine individually whether hedging pays off. Recognizing the possible detriment to company value and knowing the potential sources of added value allows the investigator to make informed decisions concerning the costs and benefits of a hedging policyItem The SIMEX Dubai crude oil futures contract : a post mortem(1992) Mani, Sanjay A., 1967-; Van Rensburg, W. C. J.The SIMEX Dubai crude oil futures contract stopped trading on the 28th of June 1991. This thesis analyzed the reasons for the failure of the contract. A framework for discussion was set by reviewing various theories and empirical studies on the prerequisites for contract success. The thesis than reviewed in depth, the characteristics of the SIMEX contract in it's ability to attract (i) hedgers and (ii) speculators. The thesis also reviewed the possibility of other established hedging instruments acting as a hinderance to the development of the SIMEX contract. A special emphasis was placed on the Derivative Markets and the IPE Brent futures contract as competitors to the SIMEX contractItem Weather derivatives : corporate hedging and valuation(2003-08) Yang, Chuanhou; Brockett, PatrickWeather derivatives constitute a rather recent kind of financial products developed to hedge weather risks. The development of weather derivatives represents one of the recent trends toward the convergence of insurance and finance. This dissertation addresses the valuation issue of weather derivatives in the incomplete market, hedging effectiveness of standardized weather derivatives, as well as weather hedging with the consideration of basis risk and credit risk. Basis risk is an important concern in hedging with standardized contracts. In Chapter 2, we analyze the basis risk of Heating Degree Days (HDD)/Cooling Degree Days (CDD)-indexed weather derivatives in the U.S. electricity market. Two types of standardized weather indices are used. Hedging effectiveness is compared between seasons, between different underlying indices, and among the months. Our findings extend the extant literature on weather hedging and provide important implications to all parties engaged in the weather-derivative market. Credit risk has attracted much attention in the weather risk market since the bankruptcy of Enron. In Chapter 3, we analyze risk-sharing efficiency effects of basis hedging, the joint use of the standardized exchange-traded weather derivatives, and some weather derivatives (basis weather derivatives) for hedging the basis risk, by considering the credit risk of OTC contracts. Simulations are conducted to illustrate the determinants of the hedging ratios and hedging effectiveness. Empirical analyses of the basis hedging effectiveness for some U. S. cities are provided. Weather derivatives are a classic, incomplete market model. Actuarial and complete financial valuation models are not appropriate to price weather derivatives. In Chapter 4, we propose and implement an indifference-valuation approach to price weather derivatives in the incomplete market. The fundamental idea for this approach stems from the basic economic principle of certainty equivalent, but is modified and extended to accommodate partial hedging in the financial market. In the mean-variance framework, we adopt the indifference approach to price a single weather derivative on its stand-alone performance, as well as to price the weather derivatives in the context of the marginal changes they cause to the weather derivatives portfolio.