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Article: A multi-stage financial hedging approach for the procurement of manufacturing materials
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TitleA multi-stage financial hedging approach for the procurement of manufacturing materials
 
AuthorsNi, J1
Chu, LK1
Wu, F3
Sculli, D1
Shi, Y2
 
KeywordsCommodity procurement
Hedge
Risk mitigation
 
Issue Date2012
 
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejor
 
CitationEuropean Journal Of Operational Research, 2012, v. 221 n. 2, p. 424-431 [How to Cite?]
DOI: http://dx.doi.org/10.1016/j.ejor.2012.03.031
 
AbstractThis paper addresses the problem of mitigating procurement risk that arises from volatile commodity prices by proposing a hedging strategy within a multi-stage time frame. The proposed multi-stage hedging strategy requires a commodity futures position to be correctly initialised and rebalanced with adequate volumes of short/long positions, so as to reduce the volatility in the total procurement cost that would otherwise be generated by varying commodity spot prices. The novelty in the approach is the introduction of the rebalancing of commodity futures position at defined intermediate stages. To obtain an efficient or near optimal multi-stage hedging strategy, a discrete-time stochastic control model (DSCM) is developed. Numerical experiments and Monte Carlo simulation are used to show that the proposed multi-stage hedging strategy compares favourably with the minimal-variance hedge and the one-stage hedge. A close-form optimal solution is also presented for the case when procurement volume and price are independent. © 2012 Elsevier B.V. All rights reserved.
 
ISSN0377-2217
2012 Impact Factor: 2.038
2012 SCImago Journal Rankings: 2.596
 
DOIhttp://dx.doi.org/10.1016/j.ejor.2012.03.031
 
ISI Accession Number IDWOS:000304849700016
Funding AgencyGrant Number
National Natural Science Foundation of China (NSFC)71071126
Funding Information:

The authors are grateful to the support provided by the National Natural Science Foundation of China (NSFC No. 71071126).

 
ReferencesReferences in Scopus
 
DC FieldValue
dc.contributor.authorNi, J
 
dc.contributor.authorChu, LK
 
dc.contributor.authorWu, F
 
dc.contributor.authorSculli, D
 
dc.contributor.authorShi, Y
 
dc.date.accessioned2012-04-24T07:51:04Z
 
dc.date.available2012-04-24T07:51:04Z
 
dc.date.issued2012
 
dc.description.abstractThis paper addresses the problem of mitigating procurement risk that arises from volatile commodity prices by proposing a hedging strategy within a multi-stage time frame. The proposed multi-stage hedging strategy requires a commodity futures position to be correctly initialised and rebalanced with adequate volumes of short/long positions, so as to reduce the volatility in the total procurement cost that would otherwise be generated by varying commodity spot prices. The novelty in the approach is the introduction of the rebalancing of commodity futures position at defined intermediate stages. To obtain an efficient or near optimal multi-stage hedging strategy, a discrete-time stochastic control model (DSCM) is developed. Numerical experiments and Monte Carlo simulation are used to show that the proposed multi-stage hedging strategy compares favourably with the minimal-variance hedge and the one-stage hedge. A close-form optimal solution is also presented for the case when procurement volume and price are independent. © 2012 Elsevier B.V. All rights reserved.
 
dc.description.natureLink_to_subscribed_fulltext
 
dc.identifier.citationEuropean Journal Of Operational Research, 2012, v. 221 n. 2, p. 424-431 [How to Cite?]
DOI: http://dx.doi.org/10.1016/j.ejor.2012.03.031
 
dc.identifier.citeulike10674746
 
dc.identifier.doihttp://dx.doi.org/10.1016/j.ejor.2012.03.031
 
dc.identifier.eissn1872-6860
 
dc.identifier.epage431
 
dc.identifier.hkuros199312
 
dc.identifier.isiWOS:000304849700016
Funding AgencyGrant Number
National Natural Science Foundation of China (NSFC)71071126
Funding Information:

The authors are grateful to the support provided by the National Natural Science Foundation of China (NSFC No. 71071126).

 
dc.identifier.issn0377-2217
2012 Impact Factor: 2.038
2012 SCImago Journal Rankings: 2.596
 
dc.identifier.issue2
 
dc.identifier.scopuseid_2-s2.0-84861093151
 
dc.identifier.spage424
 
dc.identifier.urihttp://hdl.handle.net/10722/146389
 
dc.identifier.volume221
 
dc.languageeng
 
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejor
 
dc.publisher.placeNetherlands
 
dc.relation.ispartofEuropean Journal of Operational Research
 
dc.relation.referencesReferences in Scopus
 
dc.subjectCommodity procurement
 
dc.subjectHedge
 
dc.subjectRisk mitigation
 
dc.titleA multi-stage financial hedging approach for the procurement of manufacturing materials
 
dc.typeArticle
 
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Author Affiliations
  1. The University of Hong Kong
  2. South China University of Technology
  3. Xi'an Jiaotong University