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Application of Futures in Hedging of Metal Prices Variation for Domestic Producers
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| Khadijeh Hasanlou *, Hamidreza Haddadian |
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Abstract: (847 Views) |
| In the last years considerable variation of metal prices in the world causes extreme changing in the income of domestic producers and consumers of metals especially copper producers or consumers. Thus stabling and countering with variation of copper world prices is so necessary. One of the usual and applicable ways for that is entering derivatives market. In this article we investigate how much this tool reduce risks of these kinds of companies. We use one to four month COMEX futures contract in the period of 5 years (2008 -2012). We also use London metal exchange (LME) prices for spot prices in the same period. In this study we evaluate efficiency of hedging using futures contracts by one of econometrics models (VAR). Result of this investigation shows that it's possible to reduce the risk 87% at the minimum and 96% at the maximum using this contracts. Finally we estimate optimum hedging rate that proves increasing in maturity of contracts will increase the efficiency of model. So 4-month contracts are the most efficient and 1-month contracts the least efficient |
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| Keywords: Futures contract, Econometrics, Price Hedging, VAR, COMEX |
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Full-Text [PDF 594 kb]
(169 Downloads)
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notification: Research |
Subject:
Special
Received: 2014/01/5 | Accepted: 2014/05/10 | Published: 2013/12/22
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