Hedging Crude Oil and Corn Futures: An Application in International Trade

Xin Li

No 170174, 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota from Agricultural and Applied Economics Association

Abstract: Corn and crude oil futures contracts are analyzed for their effectiveness in reducing uncertainty for international corn traders after China's accession to the World Trade Organization. A theoretical model is developed for a trader exposed to several types of risk. The naive hedge strategy is compared to the OLS hedge ratio estimation and the VECM-DCC-Multivariate-GARCH method. Explicit modeling of the time-varying in hedge ratios using all derivatives, and taking into account dependencies between different, yet related markets, resulting in reduction in risk during the 2008 financial crisis period. In general, hedging effectiveness is increasing in hedging horizon.

Keywords: Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea14:170174

DOI: 10.22004/ag.econ.170174

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