IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Financial instruments to hedge commodity price risk for developing countries

  • Lu, Yinqiu

    ()

    (International Monetary Fund)

  • Neftci, Salih

Many developing economies are heavily exposed to commodity markets, leaving them vulnerable to the vagaries of international commodity prices. This paper examines the use of commodity options, including plain vanilla, risk reversal, and barrier options, to hedge such risks. It then proposes the use of a new structured product, a sovereign Eurobond with an embedded option on a specific commodity price. By extracting commodity price risk out of the bond, such an instrument insulates the bond default risk from commodity price movements, allowing it to be marketed at a lower credit spread. The product is also designed to help developing countries establish a credit derivatives market, which would in turn enhance the marketability and liquidity of sovereign bonds.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.capco.com/?q=content/journal-detail&sid=684
File Function: Full text
Download Restriction: no

Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 24 (2008)
Issue (Month): ()
Pages: 137-143

as
in new window

Handle: RePEc:ris:jofitr:0820
Contact details of provider: Postal: 120 Broadway, 29th Floor New York, NY 10271
Phone: +1 212 284 8600
Web page: http://www.capco.com/
Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Larson, Donald F. & Varangis, Panos & Yabuki, Nanae, 1998. "Commodity risk management and development," Policy Research Working Paper Series 1963, The World Bank.
  2. Paolo Mauro & Törbjörn I. Becker & Jonathan David Ostry & Romain Ranciere & Olivier Jeanne, 2007. "Country Insurance: The Role of Domestic Policies," IMF Occasional Papers 254, International Monetary Fund.
  3. repec:rus:hseeco:74540 is not listed on IDEAS
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  5. Joseph Atta-Mensah, 2004. "Commodity-Linked Bonds: A Potential Means for Less-Developed Countries to Raise Foreign Capital," Working Papers 04-20, Bank of Canada.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:0820. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Springett)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.