Microeconomic Risk Management and Macroeconomic Stability

Business & Finance, Economics, International Economics, Macroeconomics
Cover of the book Microeconomic Risk Management and Macroeconomic Stability by Andreas Röthig, Springer Berlin Heidelberg
View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart
Author: Andreas Röthig ISBN: 9783642015656
Publisher: Springer Berlin Heidelberg Publication: August 2, 2009
Imprint: Springer Language: English
Author: Andreas Röthig
ISBN: 9783642015656
Publisher: Springer Berlin Heidelberg
Publication: August 2, 2009
Imprint: Springer
Language: English

“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.

View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart

“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.

More books from Springer Berlin Heidelberg

Cover of the book African Ecology by Andreas Röthig
Cover of the book Recent Advances in Elastomeric Nanocomposites by Andreas Röthig
Cover of the book Plastic Surgery of Head and Neck by Andreas Röthig
Cover of the book Visionäre von heute – Gestalter von morgen by Andreas Röthig
Cover of the book Special Focus on the Biology of Aging by Andreas Röthig
Cover of the book Metastable States in Amorphous Chalcogenide Semiconductors by Andreas Röthig
Cover of the book Allgemeine Betriebswirtschaftslehre by Andreas Röthig
Cover of the book Strategisches Informationsmanagement in Großprojekten der Industrie by Andreas Röthig
Cover of the book Ice Physics and the Natural Environment by Andreas Röthig
Cover of the book Setting Up Joint Ventures in China by Andreas Röthig
Cover of the book Kunsttherapie in der psychologischen Praxis by Andreas Röthig
Cover of the book Global Power Europe - Vol. 2 by Andreas Röthig
Cover of the book Ionospheric Prediction and Forecasting by Andreas Röthig
Cover of the book Erfolgreiche agile Projekte by Andreas Röthig
Cover of the book Scientific Research II by Andreas Röthig
We use our own "cookies" and third party cookies to improve services and to see statistical information. By using this website, you agree to our Privacy Policy