Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts
Derivatives markets show that their structure is always characterized by periods of strong price fluctuations. This is true regardless of the underlying asset of the futures contracts considered, whether they are commodities, interest rates, exchange rates, shares, stock market indices, etc. By lock...
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| Format: | Article |
| Language: | English |
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EDP Sciences
2022-01-01
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| Series: | International Journal for Simulation and Multidisciplinary Design Optimization |
| Subjects: | |
| Online Access: | https://www.ijsmdo.org/articles/smdo/full_html/2022/01/smdo210126/smdo210126.html |
| _version_ | 1818236662597025792 |
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| author | Bouchekourte Mustapha Rhouas Sara El Hami Norelislam |
| author_facet | Bouchekourte Mustapha Rhouas Sara El Hami Norelislam |
| author_sort | Bouchekourte Mustapha |
| collection | DOAJ |
| description | Derivatives markets show that their structure is always characterized by periods of strong price fluctuations. This is true regardless of the underlying asset of the futures contracts considered, whether they are commodities, interest rates, exchange rates, shares, stock market indices, etc. By locking in future prices, the primary objective of these markets is to limit the risks faced by operators. This article proposes a new method of optimizing the coverage ratio by futures contracts to minimize price variance and thus apply this new technique to reduce the risk associated with Brent price volatility for the period from January 2010 to December 2020. The variance minimization model of Ederington's (1979) is the first and most widely used coverage model and the one that dominates the literature on this area which helps to find the optimal coverage ratio, and is also the objective function in our particle assay optimization algorithm in MATLAB and we will better interpret our results with statistical analysis and lastly, we will evaluate the effectiveness of the coverage model. |
| first_indexed | 2024-12-12T12:13:26Z |
| format | Article |
| id | doaj.art-293a2b53038a471596f6deb378551148 |
| institution | Directory Open Access Journal |
| issn | 1779-6288 |
| language | English |
| last_indexed | 2024-12-12T12:13:26Z |
| publishDate | 2022-01-01 |
| publisher | EDP Sciences |
| record_format | Article |
| series | International Journal for Simulation and Multidisciplinary Design Optimization |
| spelling | doaj.art-293a2b53038a471596f6deb3785511482022-12-22T00:24:49ZengEDP SciencesInternational Journal for Simulation and Multidisciplinary Design Optimization1779-62882022-01-01131710.1051/smdo/2022006smdo210126Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contractsBouchekourte Mustapha0https://orcid.org/0000-0003-1810-8805Rhouas Sara1https://orcid.org/0000-0002-1323-4055El Hami Norelislam2Research Laboratory in Management Sciences Organizations, ENCG, Ibn Tofail UniversityEngineering Sciences Laboratory – ENSA, Ibn Tofail UniversityEngineering Sciences Laboratory – ENSA, Ibn Tofail UniversityDerivatives markets show that their structure is always characterized by periods of strong price fluctuations. This is true regardless of the underlying asset of the futures contracts considered, whether they are commodities, interest rates, exchange rates, shares, stock market indices, etc. By locking in future prices, the primary objective of these markets is to limit the risks faced by operators. This article proposes a new method of optimizing the coverage ratio by futures contracts to minimize price variance and thus apply this new technique to reduce the risk associated with Brent price volatility for the period from January 2010 to December 2020. The variance minimization model of Ederington's (1979) is the first and most widely used coverage model and the one that dominates the literature on this area which helps to find the optimal coverage ratio, and is also the objective function in our particle assay optimization algorithm in MATLAB and we will better interpret our results with statistical analysis and lastly, we will evaluate the effectiveness of the coverage model.https://www.ijsmdo.org/articles/smdo/full_html/2022/01/smdo210126/smdo210126.htmlbrent oilriskprice volatilitycoverage ratiooptimizationparticle swarm optimization |
| spellingShingle | Bouchekourte Mustapha Rhouas Sara El Hami Norelislam Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts International Journal for Simulation and Multidisciplinary Design Optimization brent oil risk price volatility coverage ratio optimization particle swarm optimization |
| title | Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts |
| title_full | Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts |
| title_fullStr | Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts |
| title_full_unstemmed | Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts |
| title_short | Minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of Brent futures contracts |
| title_sort | minimizing the variance of the coverage ratio as an approach to optimize the exchange rate risk of brent futures contracts |
| topic | brent oil risk price volatility coverage ratio optimization particle swarm optimization |
| url | https://www.ijsmdo.org/articles/smdo/full_html/2022/01/smdo210126/smdo210126.html |
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