OPTIONS HEDGING AS A MEAN OF PRICE RISK ELIMINATION

Tonci Lazibat and Tomislav Bakovic
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Tonci Lazibat: University of Zagreb
Tomislav Bakovic: University of Zagreb

Economic Thought and Practice, 2007, vol. 16, issue 1, 63-78

Abstract: Price risk can be considered one of most important risks most foreign trade companies face. From this aspect use of modern futures markets can be considered a basic precondition for the survival of most businesses. For the purpose of insurance hedging has been in use for more than a century, but still its forms have evolved over time. On the other hand options can be considered the most sophisticated instrument futures trade can offer at this point. The aim of this paper is to present how options, which are normally considered a main tool for speculation, can successfully be used as a tool for price risk elimination.

Keywords: hedging; price risk; options; futures markets (search for similar items in EconPapers)
JEL-codes: F19 G13 (search for similar items in EconPapers)
Date: 2007
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