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Article: A multi-stage financial hedging approach for the procurement of manufacturing materials

TitleA multi-stage financial hedging approach for the procurement of manufacturing materials
Authors
KeywordsCommodity procurement
Hedge
Risk mitigation
Issue Date2012
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejor
Citation
European Journal Of Operational Research, 2012, v. 221 n. 2, p. 424-431 How to Cite?
Abstract
This 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.
Persistent Identifierhttp://hdl.handle.net/10722/146389
ISSN
2013 Impact Factor: 1.843
2013 SCImago Journal Rankings: 2.595
ISI Accession Number ID
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).

References

 

Author Affiliations
  1. The University of Hong Kong
  2. South China University of Technology
  3. Xi'an Jiaotong University
DC FieldValueLanguage
dc.contributor.authorNi, Jen_HK
dc.contributor.authorChu, LKen_HK
dc.contributor.authorWu, Fen_HK
dc.contributor.authorSculli, Den_HK
dc.contributor.authorShi, Yen_HK
dc.date.accessioned2012-04-24T07:51:04Z-
dc.date.available2012-04-24T07:51:04Z-
dc.date.issued2012en_HK
dc.identifier.citationEuropean Journal Of Operational Research, 2012, v. 221 n. 2, p. 424-431en_HK
dc.identifier.issn0377-2217en_HK
dc.identifier.urihttp://hdl.handle.net/10722/146389-
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.en_HK
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejoren_HK
dc.relation.ispartofEuropean Journal of Operational Researchen_HK
dc.subjectCommodity procurementen_HK
dc.subjectHedgeen_HK
dc.subjectRisk mitigationen_HK
dc.titleA multi-stage financial hedging approach for the procurement of manufacturing materialsen_HK
dc.typeArticleen_HK
dc.identifier.emailChu, LK:lkchu@hkucc.hku.hken_HK
dc.identifier.authorityChu, LK=rp00113en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.ejor.2012.03.031en_HK
dc.identifier.scopuseid_2-s2.0-84861093151en_HK
dc.identifier.hkuros199312en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-84861093151&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume221en_HK
dc.identifier.issue2en_HK
dc.identifier.spage424en_HK
dc.identifier.epage431en_HK
dc.identifier.eissn1872-6860-
dc.identifier.isiWOS:000304849700016-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridNi, J=35771345200en_HK
dc.identifier.scopusauthoridChu, LK=7202233520en_HK
dc.identifier.scopusauthoridWu, F=53867635000en_HK
dc.identifier.scopusauthoridSculli, D=7003917046en_HK
dc.identifier.scopusauthoridShi, Y=16508014700en_HK
dc.identifier.citeulike10674746-

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