Hedging the portfolio of raw materials and the commodity under the mark-to-market risk

Junhui Fu, Wei-Guo Zhang, Zheng Yao and Xili Zhang

Economic Modelling, 2012, vol. 29, issue 4, 1070-1075

Abstract: This paper considers the hedging problem of a portfolio composed of raw materials and a commodity. A new theoretical model is presented to manage the risk exposure of the portfolio under the mark-to-market risk. Moreover, we employ the Lemke algorithm to obtain the optimal hedging strategy. We use a case of the soybean oil manufacturer from May 2008 to June 2011 to illustrate the proposed model and algorithm. The results show that the mark-to-market risk must be taken into account when devising the hedging strategies.

Keywords: Portfolio hedging; Mark-to-market risk; Neural networks; Genetic algorithm (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:4:p:1070-1075

DOI: 10.1016/j.econmod.2012.03.025

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