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Applied Financial Mathematical Model for Derivative Instruments and Hedging Exchange Rate

Author

Listed:
  • Doan Van Dinh

    () (Ho Chi Minh City University of Industry)

  • Guangming Gong

    (Business School Hunan University)

Abstract

Currently, the international economic transactions are regularly occurring. The statistics of imports and exports were published by the General Administration of Customs that the total turnover of the country's imports in year of 2012 was 228.37 billion U.S. dollars, increased by 12.1 % in comparison with the results of 2011. Thus, this is the 2nd year in a row total export and import turnover of Vietnam exceeded $ 200 billion. This result shows that the foreign currency transactions of Vietnam economy are growing and exchange rates are regularly fluctuated in the foreign exchange market. The objective of the article is application of derivative instruments to hedge exchange rate fluctuation. From the data of actual economic events, the article uses the financial mathematical formulas to evaluate spot rate, forward rate, put and call options rate and finds out the results of the impact factors of exchange rate risk and the effectiveness of the application of derivative instruments for financial hedging. The research results show that the application of derivative instruments is necessary to minimize financial risk and how to bring high economic benefits?

Suggested Citation

  • Doan Van Dinh & Guangming Gong, 2013. "Applied Financial Mathematical Model for Derivative Instruments and Hedging Exchange Rate," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 254-273, October.
  • Handle: RePEc:hur:ijaraf:v:3:y:2013:i:4:p:254-273
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    References listed on IDEAS

    as
    1. Patro, Dilip K. & Wald, John K. & Wu, Yangru, 2002. "Explaining exchange rate risk in world stock markets: A panel approach," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 1951-1972, October.
    2. Henk Berkman & Michael E. Bradbury & Phil Hancock & Clare Innes, 2002. "Derivative financial instrument use in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(2), pages 97-109.
    3. Michael G. Papaioannou, 2006. "Exchange Rate Risk Measurement and Management: Issues and Approaches for Firms," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 4(2), pages 129-146.
    4. Christian Laux & Christian Leuz, 2010. "Did Fair-Value Accounting Contribute to the Financial Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 93-118, Winter.
    5. Laux, Christian & Leuz, Christian, 2009. "The crisis of fair-value accounting: Making sense of the recent debate," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 826-834, August.
    6. Zhang, Haiwen, 2009. "Effect of derivative accounting rules on corporate risk-management behavior," Journal of Accounting and Economics, Elsevier, vol. 47(3), pages 244-264, June.
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