scholarly journals Production Decision Analysis Under Exchange Rate Demand, And Carbon Prices Uncertainties

2021 ◽  
Author(s):  
Satheeskaran Prasad
Keyword(s):  
Brownian Motion ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Options ◽  
Carbon Emissions ◽  
Geometric Brownian Motion ◽  
Risk Averse ◽  
Financial Options ◽  
Production Decision ◽  
Financial Losses

This thesis presents an optimal production decision analysis for a multinational firm under exchange rate, carbon allowance prices, and demand uncertainties. Firms having production and sales in two different countries experience both demand and exchange rate uncertainties. When exchange rates move unfavorably, multinational firms face financial losses because of falling profits. Demand uncertainties may result in underage cost when production quantities are less than the demand, or overage cost when production quantities are more than the demand. Additionally, recent environmental regulations on emissions of green house gases, particularly carbon dioxide emissions, also pose risk on firms’s profitability. It is thus important for a risk-averse manager to decide how to mitigate these uncertainties to protect the firm’s financial losses. In order to address these issues, mathematical models that capture firm’s production allocation problem under different scenarios of exchange rate, carbon emissions, and demand uncertainties have been developed. The risk attitude of the firm manager is assumed to be risk averse and is modeled by a mean-variance (MV) utility function. In order to hedge downside risk of exchange rates and upside risk of carbon allowance prices, the firm takes long positions in currency put and carbon call options, respectively. The objective is to maximize the MV function of the firm subject to various capacity and demand constraints and determine the optimal number of currency put and carbon call options. The firm possesses real options capability in the form of capacity flexibility represented by a vector of discrete capacity levels to meet uncertainties of demand. Demand uncertainties are assumed to follow regime-switching behaviors – considering both onestate and two-state probability distributions. The stochastic behavior of exchange rate is modeled by a geometric Brownian motion and its limiting case as a random walk. Functioning under a cap-and-trade emission trading scheme, the firm is obliged to buy carbon allowances for its carbon emissions. Carbon allowance prices are modeled as both geometric Brownian motion and geometric Brownian motion with jump processes. Results demonstrate that integration of real options and financial options increases the utility of the firm, while financial options reduce the variance of the profit.

scholarly journals Production Decision Analysis Under Exchange Rate Demand, And Carbon Prices Uncertainties

2021 ◽  
Author(s):  
Satheeskaran Prasad
Keyword(s):  
Brownian Motion ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Options ◽  
Carbon Emissions ◽  
Geometric Brownian Motion ◽  
Risk Averse ◽  
Financial Options ◽  
Production Decision ◽  
Financial Losses

This thesis presents an optimal production decision analysis for a multinational firm under exchange rate, carbon allowance prices, and demand uncertainties. Firms having production and sales in two different countries experience both demand and exchange rate uncertainties. When exchange rates move unfavorably, multinational firms face financial losses because of falling profits. Demand uncertainties may result in underage cost when production quantities are less than the demand, or overage cost when production quantities are more than the demand. Additionally, recent environmental regulations on emissions of green house gases, particularly carbon dioxide emissions, also pose risk on firms’s profitability. It is thus important for a risk-averse manager to decide how to mitigate these uncertainties to protect the firm’s financial losses. In order to address these issues, mathematical models that capture firm’s production allocation problem under different scenarios of exchange rate, carbon emissions, and demand uncertainties have been developed. The risk attitude of the firm manager is assumed to be risk averse and is modeled by a mean-variance (MV) utility function. In order to hedge downside risk of exchange rates and upside risk of carbon allowance prices, the firm takes long positions in currency put and carbon call options, respectively. The objective is to maximize the MV function of the firm subject to various capacity and demand constraints and determine the optimal number of currency put and carbon call options. The firm possesses real options capability in the form of capacity flexibility represented by a vector of discrete capacity levels to meet uncertainties of demand. Demand uncertainties are assumed to follow regime-switching behaviors – considering both onestate and two-state probability distributions. The stochastic behavior of exchange rate is modeled by a geometric Brownian motion and its limiting case as a random walk. Functioning under a cap-and-trade emission trading scheme, the firm is obliged to buy carbon allowances for its carbon emissions. Carbon allowance prices are modeled as both geometric Brownian motion and geometric Brownian motion with jump processes. Results demonstrate that integration of real options and financial options increases the utility of the firm, while financial options reduce the variance of the profit.

Power Systems Investments

2011 ◽  
pp. 248-267
Author(s):  
João Zambujal-Oliveira
Keyword(s):  
Monte Carlo ◽  
Brownian Motion ◽  
Power Systems ◽  
Option Pricing ◽  
Real Options ◽  
Geometric Brownian Motion ◽  
Real Options Approach ◽  
Pricing Problems ◽  
Recursive Solutions ◽  
Poor Adhesion

The study employs a real options approach that doesn’t need to capture all the uncertainty and proposes a process that directly determines the uncertainty associated with the first period. The results support that its use can be considered fair. However, it shows that long periods of operation and poor adhesion to the geometric Brownian motion by the project returns might call into question its use in the energy market. The values for option pricing have remained inside acceptable ranges, but some shortfalls could be found. First, the study employs Monte Carlo simulations, which can be viewed as forward-looking processes, and option pricing problems need backward recursive solutions. Second, the study shows that its simplicity produces results as accurate as those gathered from approaches with added complexity and computational needs.

Fear of Free Floating or Forced Exchange Rate Fixing

2004 ◽  
pp. 112-122
Author(s):  
O. Osipova
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Exchange Rates ◽  
Inflation Targeting ◽  
Exchange Rate Policy ◽  
Float Exchange Rate ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Exchange Rate Arrangements ◽  
Pass Through

After the financial crisis at the end of the 1990 s many countries rejected fixed exchange rate policy. However actually they failed to proceed to announced "independent float" exchange rate arrangement. This might be due to the "fear of floating" or an irreversible result of inflation targeting central bank policy. In the article advantages and drawbacks of fixed and floating exchange rate arrangements are systematized. Features of new returning to exchange rates stabilization and possible risks of such policy for Russia are considered. Special attention is paid to the issue of choice of a "target" currency composite which can minimize external inflation pass-through.

Project portfolio valuation using real options

2020 ◽  
Vol 13 (2) ◽  
pp. 126-146
Author(s):  
A.B. Lanchakov ◽  
S.A. Filin ◽  
A.Zh. Yakushev
Keyword(s):  
Real Options ◽  
Real Option ◽  
Project Portfolio ◽  
Risk And Uncertainty ◽  
Expected Effect ◽  
Investment Projects ◽  
Financial Options ◽  
Portfolio Efficiency ◽  
The Face ◽  
Effective Development

Subject. The article analyzes the expected effect of a portfolio of projects in the face of risk and uncertainty, when using real options. Objectives. The purpose is to offer a more objective formula to assess the expected impact of a portfolio of projects for real investment objects under risk and uncertainty, using real options, and provide recommendations for improving the portfolio efficiency. Methods. The study draws on methods of real options and evaluation of investment projects through the real option value, the cash flow discounting method, synthesis, and mathematical modeling. Results. We systematized the main types of real options and developed a formula for calculating the expected effect of project portfolio implementation. The said formula shows that considering the additional long-term costs embedded in a portfolio of real options, which are associated with the use of these real options, and, therefore, reducing the overall risk of projects and the entire portfolio, permit to improve the objectivity of such calculations. Conclusions. When analyzing real options that have real assets as underlying instruments, it is often impossible to apply the computational formulae for financial options, as they differ significantly. The systematization of the main types of real options helps expand the range of application of management solutions. The offered formula enables to improve the efficiency of project insurance under risk and uncertainty and to use additional opportunities for effective development of the company.

ANALISIS EKSPOSUR EKONOMI DAN FAKTOR-FAKTOR YANG MEMPENGARUHINYA PADA PERUSAHAAN ROKOK YANG TERCATAT DI BEI

Wahana ◽  
2019 ◽  
Vol 21 (2) ◽  
pp. 98-109
Author(s):  
Ida Musdafia Ibrahim ◽  
Arif Haryono
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Cash Flow ◽  
Firm Value ◽  
Tobacco Industry ◽  
Cash Flows ◽  
Least Square ◽  
Exchange Rate Risk ◽  
Positive Effects ◽  
Rate Risk

This study aims to analyze economic exposures and its factors namely exchange rates and inflation, that influence firm value as reflected through firm cash flow. Analytical method used Ordinary Least Square and eviews as analytical tool. This study used secondary data and cigarette industry companies listed on the Indonesia Stock Exchange as samples along 2008 to 2017. Samples choosing method used purposive sampling based on determined criterias. The results showed that partially economic exposure had positive effects on firm value but insignificant. These could be seen from the economic exposure factors influncenced namely exchange rates and inflations.The exchange rate risk has low influenced cash flow was caused of the tobacco industry has low level of export/import.Enhance,inflation also had low effect on cash flow was caused of the tendency of cigarette consumers will continue to buy cigarettes even though its price increases. In short, economic exposure in the tobacco industry has low influence toward firms value. Hence, simultaneously changes in exchange rates and inflation which are economic exposure indicators have a significant effect on cash flows.  Keywords: Economic Exposure, Exchange Rate Risk, Inflation Risk, Firms Value, Cash Flow

Exchange Rates as Exchange Rate Common Factors

2012 ◽  
Author(s):  
Ryan Greenaway ◽  
Nelson C. Mark ◽  
Donggyu Sul ◽  
Jyh-Lin Wu
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Common Factors

South Africa’s Trade Performance under Alternative Exchange Rate Regimes

2018 ◽  
Vol 10 (6) ◽  
pp. 261
Author(s):  
Romaine Patrick ◽  
Phocenah Nyatanga
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Regime ◽  
Real Exchange Rates ◽  
Series Data ◽  
Growth Strategies ◽  
The Real ◽  
Real Price ◽  
Floating Exchange Rate

This study examined the effect exchange rates have on import and export volumes under alternative exchange rate policies adopted in South Africa over the period 1960 to 2017. Using quarterly time series data for the stated period, a log-linear error correction model is employed to estimate the country’s export and import elasticities, taking into account Gross Domestic Product (GDP), the real price of exports, the real price of imports and real exchange rates. Using the freely floating exchange rate regime as the base period, the study concluded that both export and import volumes are lower under a system of fixed exchange rates. Export and import volumes were also found to be lower under the dual exchange rate regime, relative to the freely floating exchange rate regime. In accordance with export-led growth strategies, exports were found to be higher and imports lower under a managed floating exchange rate regime. It is therefore recommended that South Africa revert to a more managed exchange rate regime, until the South African economy is developed to accommodate a freely floating exchange rate regime.

scholarly journals PENGARUH KURS, GROSS DOMESTIC PRODUCT DAN SOLVABILITAS TERHADAP RETURN SAHAM INVESTOR PADA PERUSAHAAN PERTAMBANGAN

2019 ◽  
Vol 8 (10) ◽  
pp. 6262
Author(s):  
Martina Carissa Dewi ◽  
Luh Gede Sri Artini
Keyword(s):  
Exchange Rate ◽  
Gross Domestic Product ◽  
Exchange Rates ◽  
Stock Returns ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Domestic Product ◽  
Mining Company ◽  
Macroeconomic Factors ◽  
Regression Test

The level of return obtained by investors is influenced by microeconomic and macroeconomic factors. This study aims to obtain empirical evidence regarding the effect of exchange rates, Gross Domestic Product and solvency on stock returns. This research was conducted at the mining company in the coal sub-sector on the Indonesia Stock Exchange. All the coal mining sub-sector companies listed on the Stock Exchange for the period 2014-2017 used as the population. The method of determining the sample used is using a saturated sampling technique. Multiple linear regression test used as the data analysis on this research. Based on the results of the analysis of this study it was found that the exchange rate and GDP had a negative and significant effect on stock returns. The solvency proxied by DER has a positive and significant effect on stock returns. Keywords: Exchange Rate, Gross Domestic Product, Solvability and Return.

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