PRICE RISK MANAGEMENT IN THE WHEAT MARKET USING OPTION STRATEGIES
DOI:
https://doi.org/10.5937/ekoPolj2102449BKeywords:
price risk management, agricultural market, vanilla option, option strategies, volatilityAbstract
Recently, the agricultural business is displayed a greater amount of risk because of price volatility growth. Consequently, it is necessary to have knowledge of how to regulate the risk of price fluctuations. This paper is concerned with the hedging techniques in the commodity market by the help of vanilla options. The main idea is to analyze option strategies with the ambition to demonstrate their utilization by hedging against increasing prices. Hedged buying price formulas are derived for every spot futures price. An additional contribution is considered for applying in the wheat trading. Chicago Mercantile Exchange products, i.e. wheat options on futures are investigated. The profitability of hedged scenarios is examined. A comparative analysis of the designed hedging variants is presented. Suggestions for potential wheat buyers are proposed.
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References
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23. Timková, M. (2016). Investing in gold using reverse bonus sprint certificate. Scientific Papers of the University of Pardubice, 23(38), 31-42.
24. Timková, M. (2018). Managing price risk in the corn market using option strategies. Acta Universitatis agriculturae et silviculturae Mendelianae Brunensis, 66(3), 767-779. https://doi.org/10.11118/actaun201866030767
25. Timková, M., & Šoltés, M. (2019). Managing the equity risk using Short Put Ladder strategy by barrier options. Investment Management and Financial Innovations, 16(4), 133-145. https://doi.org/10.21511/imf.16(4).2019.12
2. CME Group, Chicago, Retrieved from http://www.cmegroup.com (October 14, 2020)
3. Cohen, G. (2005). The Bible of Options Strategies. Pearson Prentice Hall, New Jersey, USA.
4. Đordjevic, B. (2018). Hedging by Using Weather Derivatives in Winter Ski Tourism. Economics of Agriculture, 65(1), 125-142. https://doi.org/10.5987/ekoPolj1801125D
5. Garcia, P., & Leuthold, R.M. (2004). A selected review of agricultural commodity futures and options markets. European review of agricultural economics, 31(3), 235–272.
6. Harčariková, M., & Bánociová, A. (2015). Analysis of using options to the express certificates formation. Economic Research, 28(1), 354-366. https://doi.org/10.1080/1331677X.2015.1043776
7. Harčariková, M. (2015). Proposal of new outperformance certificates in agricultural market. Agricultural Economics, 61(9), 400-409. https://doi.org/10.17221/199/2014-AGRICECON
8. Harčariková, M., & Šoltés, M. (2016). Risk Management in Energy Sector Using Short Call Ladder Strategy. Montenegrin Journal of Economics, 12(3), 39-54. https://doi.org/10.14254/1800-5845.2016/12-3/3
9. Harčariková, M., & Šoltés, M. (2017). New hedging techniques in energy sector using barrier options. Acta Montanistica Slovaca, 22(4), 389-395.
10. Hull, J.C. (2009). Options, Futures, and Other Derivatives. 7th edition. Pearson Prentice Hall, New Jersey, USA.
11. Hull, J.C. (2011). Fundamentals of Futures and Options Markets. Global Edition, Pearson, London, UK.
12. Kolb, R.W. (1995). Understanding options. John Wiley & Sons, Ltd., Hardcover.
13. Kolb, R.W., & Overdahl, J.A. (2010). Financial Derivatives: Pricing and Risk Management. JohnWiley & Sons, Inc., New Jersey, USA.
14. Kuzman, B., Ercegovac, D., & Momčilović, M. (2018). Development of derivative trading on fnancial market and agribusiness sector in Serbia. Economics of Agriculture, 65(2), 601-616. https://doi.org/10.5937/ekoPolj1802601K
15. Šoltés, V. (2002). Financial derivatives [in Slovak: Finančné deriváty]. EkF TUKE, Košice, Slovakia.
16. Šoltés, M., & Harčariková, M. (2015). Analysis of Nova 1 strategy formed by barrier options and its application in hedging against a price drop in oil market. Acta Montanistica Slovaca, 20(4), 311-318. https://doi.org/10.3390/ams20040311
17. Šoltés, V., & Harčariková, M. (2015). Analysis of Using Barrier Options to the Formation of New Structured Products. Mediterranean Journal of Social Sciences, 6(2), 303-311. https://doi.org/10.5901/mjss.2015.v6n2p303
18. Šoltés, M., & Harčariková, M. (2016). Gold price risk management through nova 3 option strategy created by barrier options. Investment Management and Financial Innovations, 13(1), 49-60. https://doi.org/10.21511/imf.13(1).2016.04
19. Šoltés, V., & Harčariková, M. (2017). Design of new barrier outperformance certificates in oil market. Engineering Economics, 28(3), 262-270. https://doi.org/10.5755/j01.ee.28.3.11481
20. Šoltés, V., Timková, M., & Gičová, V. (2019). New Modifications of Express Certificates on Two Assets. Montenegrin Journal of Economics, 15(4), 113-129.
21. Taleb, N.N. (1997). Dynamic Hedging: Managing Vanilla and Exotic Options. Wiley & Sons, Inc., New Jersey, USA.
22. Taušer, J., & Čajka, R. (2014). Hedging techniques in commodity risk management. Agricultural Economics, 60(4), 174-182. https://doi.org/10.17221/120/2013-AGRICECON
23. Timková, M. (2016). Investing in gold using reverse bonus sprint certificate. Scientific Papers of the University of Pardubice, 23(38), 31-42.
24. Timková, M. (2018). Managing price risk in the corn market using option strategies. Acta Universitatis agriculturae et silviculturae Mendelianae Brunensis, 66(3), 767-779. https://doi.org/10.11118/actaun201866030767
25. Timková, M., & Šoltés, M. (2019). Managing the equity risk using Short Put Ladder strategy by barrier options. Investment Management and Financial Innovations, 16(4), 133-145. https://doi.org/10.21511/imf.16(4).2019.12
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Published
2021-06-24
How to Cite
Bobriková, M. (2021). PRICE RISK MANAGEMENT IN THE WHEAT MARKET USING OPTION STRATEGIES. Ekonomika Poljoprivrede, 68(2), 449–461. https://doi.org/10.5937/ekoPolj2102449B
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Review articles
