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Hedging (Finance)

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Though well-established in the commercial sector, the use of market-based price risk management is not widespread in the public sector, particularly by sovereigns. Recent volatility in energy and food prices, however, has awakened the interest of some governments to learn more about how they can either use these tools, or foster supportive environment where these tools can be used by local supply chain actors. Equally important is ensuring that non-price related risks are isolated, monitored, and managed independent of direct price exposure. This note reviews lessons learned from recent efforts to advance risk management strategies in countries vulnerable to food and energy price shocks. It focuses specifically on the use of market-based risk management approaches and use by sovereigns. For governments concerned about the risk of food price shocks, the fiscal impact is equally complicated as governments may be concerned about the impact of rising food prices on consumers, the need to finance, and potentially supply, subsidies or social safety nets for vulnerable populations or, in extreme cases, humanitarian operations. In both cases, the costs of budget uncertainty and the need to finance responses in the event of a shock can be significant. Finally, though not typically used to manage specific intra-annual or intra-seasonal price exposures, commodity-linked loans or bonds can also be used to manage exposure to price shocks on a more macro level.

Access to Markets --- Accounting --- Agricultural Sector Economics --- Agriculture --- Bonds --- Commodities --- Commodity Prices --- Debt Markets --- Developing Countries --- Finance and Financial Sector Development --- Financial Institutions --- Hedging --- Insurance --- International Financial Institutions --- Legal Framework --- Low-Income Countries --- Macroeconomics and Economic Growth --- Price Volatility --- Public Debt --- Risk Management --- Social Safety Nets --- Surplus --- Trade Finance

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This book is written for quantitative finance professionals, students, educators, and mathematically inclined individual investors. It is about some of the latest developments in pricing, hedging, and investing in incomplete markets. With regard to pricing, two frameworks are fully elaborated: neutral and indifference pricing. With regard to hedging, the most conservative and relaxed hedging formulas are derived. With regard to investing, the neutral pricing methodology is also considered as a tool for connecting market asset prices with optimal positions in such assets. While there are many books on the financial mathematics of incomplete markets based on probability, and equivalent martingale measure approach to pricing, this book is based solely on the analytical aspects of stochastic control, or more precisely, portfolio optimization. Namely, relying solely on portfolio optimization, neutral and indifference pricing as well as hedging methodologies were fully developed in the context of arbitrary diffusive Markovian market models and portfolios of contracts. That was made possible by some recent discoveries, the most specific one being a recently found matrix inverse – the fundamental matrix of derivatives pricing and hedging. This approach, while very general, is very feasible for practical implementations. So, many examples are fully derived. The reader will get the full understanding of the relationship between neutral and indifference pricing, how to implement either one of these pricing methodologies, how to implement hedging methodologies, and how to apply all these in equity portfolio valuations and foreign exchange. Srdjan D. Stojanovic is Professor in the Department of Mathematical Sciences at University of Cincinnati (USA) and Professor in the Center for Financial Engineering at Suzhou University (China).

Hedging (Finance) --- Financial futures. --- Futures, Financial --- Mathematics. --- Partial differential equations. --- Applied mathematics. --- Engineering mathematics. --- Economics, Mathematical. --- Computer mathematics. --- Macroeconomics. --- Quantitative Finance. --- Macroeconomics/Monetary Economics//Financial Economics. --- Computational Mathematics and Numerical Analysis. --- Partial Differential Equations. --- Applications of Mathematics. --- Futures --- Options (Finance) --- Speculation --- Financial futures --- Finance. --- Computer science --- Differential equations, partial. --- Partial differential equations --- Computer mathematics --- Discrete mathematics --- Electronic data processing --- Economics --- Funding --- Funds --- Currency question --- Math --- Science --- Mathematics --- Differential equations, Partial. --- Economics, Mathematical . --- Mathematical economics --- Econometrics --- Engineering --- Engineering analysis --- Mathematical analysis --- Methodology

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The experience of developing countries over 1990-2010 indicates that commodity prices have a significant impact on fiscal outcomes. Both revenue and expenditure rise in response to commodity (import or export) price increases; the response of the fiscal deficit is ambiguous. A floating exchange rate regime only partially offsets the impact; foreign-exchange reserves do not dampen the effects. Hence, there is a strong case for fiscal hedging against commodity price shocks. Hedging instruments based on a limited set of benchmark world prices for a narrow set of commodities may suffice to realize most of the potential benefits.

Prices --- Fiscal policy --- Hedging (Finance) --- Options (Finance) --- Speculation --- Financial futures --- Commercial products --- Commodity prices --- Justum pretium --- Price theory --- Consumption (Economics) --- Cost --- Costs, Industrial --- Money --- Cost and standard of living --- Supply and demand --- Value --- Wages --- Willingness to pay --- Investments: Commodities --- Foreign Exchange --- Macroeconomics --- Fiscal Policy --- Macroeconomic Aspects of International Trade and Finance: General --- Commodity Markets --- Price Level --- Inflation --- Deflation --- Currency --- Foreign exchange --- Investment & securities --- Commodity price fluctuations --- Exchange rate arrangements --- Commodities --- Export prices --- Exports

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As human populations grow and resources are depleted, agriculture will need to use land, water, and other resources more efficiently and without sacrificing long-term sustainability. Darwinian Agriculture presents an entirely new approach to these challenges, one that draws on the principles of evolution and natural selection. R. Ford Denison shows how both biotechnology and traditional plant breeding can use Darwinian insights to identify promising routes for crop genetic improvement and avoid costly dead ends. Denison explains why plant traits that have been genetically optimized by individual selection--such as photosynthesis and drought tolerance--are bad candidates for genetic improvement. Traits like plant height and leaf angle, which determine the collective performance of plant communities, offer more room for improvement. Agriculturalists can also benefit from more sophisticated comparisons among natural communities and from the study of wild species in the landscapes where they evolved. Darwinian Agriculture reveals why it is sometimes better to slow or even reverse evolutionary trends when they are inconsistent with our present goals, and how we can glean new ideas from natural selection's marvelous innovations in wild species.

Sustainable agriculture. --- Agricultural biotechnology. --- Evolution (Biology) --- Crops --- Low-input agriculture --- Low-input sustainable agriculture --- Lower input agriculture --- Resource-efficient agriculture --- Sustainable farming --- Agriculture --- Alternative agriculture --- Crop evolution --- Agro-biotechnology --- Biotechnology --- Animal evolution --- Animals --- Biological evolution --- Darwinism --- Evolutionary biology --- Evolutionary science --- Origin of species --- Biology --- Evolution --- Biological fitness --- Homoplasy --- Natural selection --- Phylogeny --- Evolution. --- Crops - Evolution --- Agricultural biotechnology --- Sustainable agriculture --- Colin Donald. --- Green Revolution. --- adaptation. --- agricultural ecosystems. --- agricultural research. --- agriculture. --- agroecologists. --- agroecology. --- animals. --- bet-hedging. --- biodiversity. --- biotechnology. --- cheating. --- chemicals. --- competition. --- complementarity. --- conflict. --- cooperation. --- cotton farmers. --- crop diversity. --- crops. --- cultivation. --- drought tolerance. --- environmental impact. --- evolution. --- evolutionary arms races. --- evolutionary biology. --- farmers. --- food production. --- food security. --- food supply. --- fungus-growing ants. --- genes. --- genetic engineering. --- genetic improvement. --- group selection. --- intercropping. --- kin selection. --- leaf-cutter ants. --- multispecies interactions. --- mutualism. --- natural ecosystems. --- natural selection. --- nitrogen fixation. --- nutrient-use efficiency. --- nutrients. --- perennial grain crops. --- pest control. --- pesticide resistance. --- pests. --- phenotypic plasticity. --- photosynthesis. --- plant breeding. --- plants. --- population. --- refuge strategy. --- reindeer. --- reproductive success. --- resource-use efficiency. --- sanctions. --- sustainability. --- tradeoffs. --- transfer RNA. --- transportation. --- trees. --- water-use efficiency. --- watergrass. --- weeds. --- wild rice. --- wild species. --- yield.