Hedging exchange rate risks through installment options

Araceli Hernández-Jiménez, Francisco Venegas-Martínez and Héctor F. Salazar Núñez
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Araceli Hernández-Jiménez: Universidad del Istmo
Héctor F. Salazar Núñez: Universidad Cristóbal Colón

Chapter 3 in Tópicos Selectos sobre Inclusión y Educación Finnaciera en el Contexto Mexicano, 2019, vol. 1, pp 107-140 from Escuela Superior de Economía, Instituto Politécnico Nacional

Abstract: This study explains the importance of the use of derivatives in financial risk management for import and export companies. Installment options are analyzed as a hedging instrument against exchange rate risk and its valuation through the Black-Scholes model. A practical-hypothetical exercise will demonstrate their benefits when paying premiums. The valuation conducted in different time periods to the installment option helps identify the most favorable exercise time and its effectiveness as an exchange rate risk management instrument.

Date: 2019
ISBN: 978-0-578-58068-5
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Persistent link: https://EconPapers.repec.org/RePEc:ipn:capitu:043

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