Buy Now and Price Later: Supply Contracts with Time-Consistent Mean-Variance Financial Hedging

We consider a two-stage supply chain comprising one risk-neutral manufacturer (he) and one risk-averse retailer (she), where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer. The retailer then sells the final products to the market at a stochastic clearance price. We investigate a flexible price contract that allows the manufacturer to determine the product wholesale price, and the retailer to determine the order quantity, based on the future spot price of consumption commodities. Compared with the simple wholesale price contract, a win-win situation can be achieved under the flexible price contract when the manufacturer's postponed processing cost is lower than a threshold. However, under this flexible price contract the retailer may suffer from the commodity price volatility, even if she does not procure the commodities directly. We further investigate how the risk-averse retailer conducts mean-variance financial hedging by purchasing consumption commodity futures contracts. We formulate the problem using a dynamic programming model and derive a closed-form time-consistent financial hedging policy. Through numerical experiments, we show that the commodity price risk from the manufacturer to the retailer is effectively mitigated with the hedging, and the benefits of the flexible price contract are maintained

Managing Agricultural Price Risk in Developing Countries

We survey the experience of risk management in developing country agricultural supply chains. We focus on exposure, instruments, impediments to access and developing country futures markets. We draw on lessons from experience over the past two decades.Commodities, Risk Management, Developing Countries

Corporate Financial Risk Management Interventions in the Organic Agri-Food Chains

This study arises from the need to propose an alternative solution to existing hedging methods to all companies interested in hedging the price risk of raw materials. The research focuses mainly on the actors of the agri-food supply chains, in particular the organic sector, given the growing trend of the cultivation methodology and the need to protect entrepreneurs involved in short-chain spinneret who have less possibility of relieve higher costs incurred to ensure the sustainability of the product. However, our analysis envisages a customizable hedging method for any company that intends to protect itself from the price fluctuations of the commodity that represents the inherent nature of its business. The technique consists in the construction of specific contracts (in particular, derivative financial instruments) by investment banks or commercial banks oriented to the corporate segment that offer this service. Personalization is achieved by calibrating the constituent elements of the derivative on the basis of hedging needs. The parameterization is carried out by replicating the contractual specifications of the main futures on commodities listed on regulated markets. This will allow the creation of a combination of option contracts listed on the over-the-counter market in an overall strategy aimed at medium-long term hedging

A survey of shipping finance research: setting the future research agenda

Financing shipping related investment projects has always been a focal area of debate and research within the international maritime industry since access to funding can determine the competitiveness of a capital-intensive business as well as its success or failure under adverse market conditions. This paper provides, for the first time, a comprehensive and structured survey of all published research in the area of shipping finance and investment. The review spans approximately four decades (1979-2018) of empirical evidence, including 162 studies published in 48 scholarly journals, complemented with select books and book chapters. The study provides a bibliometric analysis and comprehensive synthesis of existing research offering an invaluable source of information for both the academic community and business practice, shaping the future research agenda in shipping finance and investment

Gestion durable des ressources dans la chaîne de valeur européenne de l’acier

The present thesis delved into the current and future interactions within the European Steel Industry and of it with the environment it is a part of, with the main objective of supporting decision- and policy-making efforts oriented towards sustainability and circularity, helping to shape the future of steel in the European Community. The thesis used the European Steel Industry as a case study to explore the potential benefits of integrating Life Cycle Assessment (LCA) into System Dynamics (SD) under the scopes of Circular Economy and Industrial Ecology. A model representative of the European Steel Industry was built modularly in Stella Architect, following ILCD and ISO guidelines and standards for LCA. Throughout 4 of the 5 articles developed for the present thesis, 21 simulation runs were performed on the aforementioned model: 12 on identifying potential constraints and benefits of End-of-Life policies; 5 assessing the advantages and disadvantages of different Supply Chain Integration (SCI) strategies along European steel supply chains; and 4 addressing the interactions between biophysical and economic dynamics in the steel market. An additional article was developed using the methodologies of Circles of Sustainability and Sustainable Urban Metabolism to appraise the challenges and contributions of steel as part of servitization initiatives in urban environments. Overall results indicated that integrating LCA into SD was not only feasible and capable of reproducing results, trends and behaviors from previous scientific studies, but also of contributing to both methodologies in different levels. This approach has potential to interest policy-makers who seek more granularity within the European Steel Industry as well as decision-makers searching for a broader understanding of their operation’s dynamics beyond the gates, notably regarding raw material scarcity, resource self-sufficiency, and resource ownership retention. From the results of each article it was observed that, (a) pushing for recycling and reuse could generate interesting medium- to long-term results for circularity, transitioning away from fossil fuels and developing a whole new market around end-of-life services; (b) different SCI approaches can be environmentally and strategically promising; (c) six key biophysical variables can distinctively affect spot prices, future prices, EBITDA margins, capacity utilization, dividend payouts, and costs of steelmaking; and (d) servitization can provide significant benefits to sustainable cities, while also being able to substantially alter the supply-side dynamics of steelmaking, highlighting how important it is for steelmakers to pay close attention to the service-providing initiatives that may concern their clients and products.La présente thèse entend examiner les interactions présentes et futures entre l'industrie sidérurgique européenne et son environnement, avec pour objectifs principaux, l’amélioration de la prise de décision et l'élaboration de politiques industrielles en matière de durabilité et de circularité. La thèse contribue à l’émergence de propositions contribuant à façonner l'avenir de l'acier dans l’Union Européenne. L'industrie sidérurgique européenne est utilisée ici comme un cas d’école, visant à explorer les avantages potentiels pour l’économie circulaire et l’écologie industrielle, d’une intégration d’un outil (Analyse du Cycle de Vie – ACV) dans une méthodologie (Dynamique des Systèmes – SD). Un modèle modulaire pour l’industrie sidérurgique européenne a été construit et, pour 4 des 5 articles développés dans la thèse, 21 simulations ont été effectuées. 12 simulations ont permis d’identifier les contraintes potentielles et les avantages des stratégies de fin de vie; 5 d’évaluer les avantages et les inconvénients des différentes stratégies d’intégration de la chaîne d’approvisionnement (SCI) dans la filière européenne de l’acier; et 4 de traiter des interactions entre les dynamiques biophysiques et économiques sur le marché de l'acier. Le dernier article s’appuie sur une nouvelle méthodologie – les Cercles de Durabilité et le Métabolisme Urbain Durable – pour évaluer les défis et les contributions de l'acier dans le cadre de l’éco-fonctionnalité en milieu urbain. Les résultats ont montré que l’intégration de l’ACV dans les stratégies de développement durable permettait de reproduire assez fidèlement les résultats et les scénarios d’études scientifiques antérieures, tout en suggérant des apports méthodologiques relativement novateurs. Cette recherche opérationnelle est susceptible d'intéresser les managers et des chefs d’entreprises qui s’attachent aux questions d’efficience et de résilience de l’outil industriel, ainsi que les décideurs politiques qui souhaitent cerner les enjeux d’une pénurie de matières premières ou d’une politique de recyclage de l’acier à l’échelle européenne. D'après les résultats de chaque article, il a été observé que (a) le recyclage et la réutilisation pourraient générer des résultats intéressants à moyen et à long terme en matière de circularité, en abandonnant notamment les combustibles fossiles et en développant un tout nouveau marché autour des services de fin de vie; (b) différentes approches en matière de chaine logistique intégrée semblent être prometteuses d'un point de vue environnemental et stratégique; (c) six variables biophysiques clés peuvent avoir une incidence notoire sur les cours au comptant, les cours à terme, les marges d'EBITDA, l'utilisation des capacités de production, la distribution des dividendes et les coûts de fabrication de l'acier; et (d) la dynamique servicielle dans le cadre de l’éco-fonctionnalité peut apporter des avantages significatifs aux villes durables, tout en modifiant considérablement la structure de l’offre sur le marché de l’acier

Riding the wave: high prices, big business? : the role of multinationals in the international grain markets

In 2007-2008, world market prices for grains and inputs such as fertiliser have risen sharply. At the same time, international trade is increasingly dominated by only a few large agribusiness firms. Civil society organisations are increasingly concerned about the potential impact of these two trends. This report provides an overview of the international trade of grains, the role of multinationals that trade in international grains, and the linkage of international and domestic grain markets in Africa. This research also provides an analysis of the role of multinationals and speculation on grain price

SELECTED PAPER ABSTRACTS

Teaching/Communication/Extension/Profession,

Pricing Chinese rain: a multi-site multi-period equilibrium pricing model for rainfall derivatives

Many industries are exposed to weather risk which they can transfer on financial markets via weather derivatives. Equilibrium models based on partial market clearing became a useful tool for pricing such kind of financial instruments. In a multi-period equilibrium pricing model agents rebalance their portfolio of weather bonds and a risk free asset in each period such that they maximize the expected utility of their incomes constituted by possibly weather dependent profits and payoffs of portfolio positions. We extend the model to a multisite version and apply it to pricing rainfall derivatives for Chinese provinces. By simulating realistic market conditions with two agent types, farmers with profits highly exposed to weather risk and a financial investor diversifying her financial portfolio, we obtain equilibrium prices for weather derivatives on cumulative monthly rainfall. Dynamic portfolio optimization under market clearing and utility indifference of these representative agents determines equilibrium quantity and price for rainfall derivatives.rainfall derivatives, equilibrium pricing, space-time Markov model

The gas chain: influence of its specificities on the liberalisation process. NBB Working Papers. No. 122, 16 November 2007

Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity

Capacity Planning with Financial and Operational Hedging in Low‐Cost Countries

The authors of this paper outline a capacity planning problem in which a risk-averse firm reserves capacities with potential suppliers that are located in multiple low-cost countries. While demand is uncertain, the firm also faces multi-country foreign currency exposures. This study develops a mean-variance model that maximizes the firm’s optimal utility and derives optimal utility and optimal decisions in capacity and financial hedging size. The authors show that when demand and exchange rate risks are perfectly correlated, a risk- averse firm, by using financial hedging, will achieve the same optimal utility as a risk-neutral firm. In this paper as well, a special case is examined regarding two suppliers in China and Vietnam. The results show that if a single supplier is contracted, financial hedging most benefits the highly risk-averse firm when the demand and exchange rate are highly negatively related. When only one hedge is used, financial hedging dominates operational hedging only when the firm is very risk averse and the correlation between the two exchange rates have become positive. With both theoretical and numerical results, this paper concludes that the two hedges are strategic tools and interact each other to maximize the optimal utility