Hedging import commodity prices for BRICS nations

Ning, Zi “Nancy” and Alan L. Tucker

Global Finance Journal, 2011, vol. 22, issue 2, 182-190

Abstract: BRICS nations have recently witnessed substantial increases in core import commodity prices that portend the possibility of significant, non-transitory inflation and all that would occasion. This paper suggests a lower-cost alternative for hedging import commodity prices. The hedging instrument examined here exploits the negative correlation between commodity output and price witnessed for normal goods. This paper provides a valuation formula for the instrument and demonstrates its ability to more effectively minimize an importer's value-at-risk when quantity uncertainty prevails.

Keywords: Commodity prices; Options; Hedging; Quantity risk; Price risk (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:22:y:2011:i:2:p:182-190

DOI: 10.1016/j.gfj.2011.10.007

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