Title

Optimum Short-Term Futures Hedge Using Stochastic Linear Programming

Abstract

Classical optimal hedge ratio concentrates on risk reduction and neglects strategic value maximisation. In this study, the authors use stochastic optimisation theories to formulate an optimal, short-term hedging scheme to mitigate risks while maximising portfolio value. Stochastic spot and futures price models are used to simulate prices. The periodic optimal hedge ratios are determined using the stochastic-optimisation algorithm. The algorithm is implemented in a Hedge-Position-Optimiser (HPO) which is verified and validated using crude oil and gold data. The results show that HPO adds value to projects by increasing portfolio value while reducing the associated risks.

Department(s)

Mining and Nuclear Engineering

Keywords and Phrases

Minerals Industry; Optimal Hedge Ratio; Simulation; Stochastic Optimisation

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2007 Inderscience, All rights reserved.

Share

 
COinS