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Hedging exchange rate risks through installment options

In: Tópicos Selectos sobre Inclusión y Educación Finnaciera en el Contexto Mexicano

Author

Listed:
  • Hernández-Jiménez, Araceli

    (Universidad del Istmo)

  • Venegas-Martínez, Francisco

    (Instituto Politécnico Nacional)

  • Salazar Núñez, Héctor F.

    (Universidad Cristóbal Colón)

Abstract

This study explains the importance of the use of derivatives in financial risk management for import and export companies. Installment options are analyzed as a hedging instrument against exchange rate risk and its valuation through the Black-Scholes model. A practical-hypothetical exercise will demonstrate their benefits when paying premiums. The valuation conducted in different time periods to the installment option helps identify the most favorable exercise time and its effectiveness as an exchange rate risk management instrument.

Suggested Citation

  • Hernández-Jiménez, Araceli & Venegas-Martínez, Francisco & Salazar Núñez, Héctor F., 2019. "Hedging exchange rate risks through installment options," Sección de Estudios de Posgrado e Investigación de la Escuela Superios de Economía del Instituto Politécnico Nacional, in: Moreno-García, Elena & Venegas-Martínez, Francisco & Baraya, Aristides R. (ed.), Tópicos Selectos sobre Inclusión y Educación Finnaciera en el Contexto Mexicano, volume 1, chapter 3, pages 107-140, Escuela Superior de Economía, Instituto Politécnico Nacional.
    • Handle: RePEc:ipn:capitu:043
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    References listed on IDEAS

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