Evaluating cash benefits as real options for a commodity producer in an emerging market

Fernando Antonio Aiube () and Edison Americo Huarsaya Tito ()
Additional contact information
Edison Americo Huarsaya Tito: Puc Rio

Brazilian Review of Finance, 2009, vol. 7, issue 3, 361-375

Abstract: The amount of cash a firm should maintain is an old problem tackled by finance literature. The recent advances in finance, mainly in the derivatives area, has opened the opportunity to revisit this subject. Cossin and Hricko (2004) studied the benefits of cash holdings using the Real Options approach. We follow their ideas extending the problem to a specific commodity producer firm in an emerging economy. We evaluate the benefits considering that raising capital takes time (timing benefit) and also the benefit of avoiding the issue of securities at unfavorable moments (underpricing benefit). We use numerical procedures to solve the problem. Despite the fact that the results are not totally intuitive, we verify that the timing benefit is much more relevant than that of avoiding the underpricing benefit and that firms in emerging economies have greater advantage holding cash than those in developed economies. There is empirical evidence of this last result in the literature.

Keywords: Opções Reais; Caixa; Produtor de Commodity; Mercados Emergentes; Opções Reais; Caixa; Produtor de Commodity; Mercados Emergentes (search for similar items in EconPapers)
JEL-codes: G13 G32 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/1354/1047 (application/pdf)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/1354 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:7:y:2009:i:3:p:361-375

Access Statistics for this article

Brazilian Review of Finance is currently edited by Marcio Laurini

More articles in Brazilian Review of Finance from Brazilian Society of Finance
Bibliographic data for series maintained by Marcio Laurini ().