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Commodity price risk management using option strategies

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  • Martina RUSNÁKOVÁ

    (Department of Finance, Faculty of Economics, Technical University of Košice, Slovak Republic)

Abstract

In the world of increasing price volatility, it is more important than ever to understand how to manage the price risk. The paper deals with the price risk management issues associated with commodities. Using options is performed by an analysis of hedging strategies in the commodity market. The authors focus on the application of the vanilla option strategies to risk management in order to point out the advantages and disadvantages of each hedging strategy. Based on the general expressions of selling price intervals, there are modelled various hedged scenarios of wheat. The authors look at the wheat option contracts traded on the Chicago Board of Trade. The comparative comparison of the option hedging strategies has shown the best results for the commodity seller who hedges against a price decline.

Suggested Citation

  • Martina RUSNÁKOVÁ, 2015. "Commodity price risk management using option strategies," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(4), pages 149-157.
    • Handle: RePEc:caa:jnlage:v:61:y:2015:i:4:id:101-2014-agricecon
    DOI: 10.17221/101/2014-AGRICECON
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    References listed on IDEAS

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    1. Mugwagwa, Tafadzwa & Ramiah, Vikash & Naughton, Tony & Moosa, Imad, 2012. "The efficiency of the buy-write strategy: Evidence from Australia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 305-328.
    2. Santa-Clara, Pedro & Saretto, Alessio, 2009. "Option strategies: Good deals and margin calls," Journal of Financial Markets, Elsevier, vol. 12(3), pages 391-417, August.
    3. Sanda, Gaute Egeland & Olsen, Eirik Tandberg & Fleten, Stein-Erik, 2013. "Selective hedging in hydro-based electricity companies," Energy Economics, Elsevier, vol. 40(C), pages 326-338.
    4. Josef TAUŠER & Radek ČAJKA, 2014. "Hedging techniques in commodity risk management," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(4), pages 174-182.
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