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Risk Management in Commodity Processing Firms

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  • Ghoddusi, Hamed

Abstract

We introduce an equilibrium view of profit hedging in a representative commodity processing industry. The commodity processor takes shocks to the supply of the primary commodity and the demand for the processed commodity as given and chooses the optimal quantity of production. Such a model generates an endogenous stochastic profit stream for the processor, which is possibly substantially different than input and output prices. Thus, absent financial instrument specifically on the spread, hedging input or output prices alone may only provide poor partial hedging to the processor.

Suggested Citation

  • Ghoddusi, Hamed, 2019. "Risk Management in Commodity Processing Firms," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 12(2-3), pages 219-239, March.
    • Handle: RePEc:now:fnttom:0200000093
    DOI: 10.1561/0200000093
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    References listed on IDEAS

    as
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    4. Brian Tomlin, 2003. "Capacity Investments in Supply Chains: Sharing the Gain Rather Than Sharing the Pain," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 317-333, November.
    5. Terry A. Taylor & Erica L. Plambeck, 2007. "Simple Relational Contracts to Motivate Capacity Investment: Price Only vs. Price and Quantity," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 94-113, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk management; Hedging; Operational risk; Supply chain finance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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