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Hedging import commodity prices for BRICS nations

Author

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  • Ning, Zi “Nancy”
  • Tucker, Alan L.

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.

Suggested Citation

  • Ning, Zi “Nancy” & Tucker, Alan L., 2011. "Hedging import commodity prices for BRICS nations," Global Finance Journal, Elsevier, vol. 22(2), pages 182-190.
    • Handle: RePEc:eee:glofin:v:22:y:2011:i:2:p:182-190
    DOI: 10.1016/j.gfj.2011.10.007
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    References listed on IDEAS

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    4. Schwartz, Eduardo S, 1997. "The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
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