Margin call risk management with furures and options

Alıravcı, Murat
This study examines dynamic hedge policy of a company in a multi-period framework. The company begins to operate a project for a customer and it also has a subcontractor which completes an important part of the project by using an economic commodity. The customer will pay a fixed price to the company at the end of the project. Meanwhile, the company needs to pay the debt to the subcontractor and the amount of the debt depends on the spot price of the commodity at that time. The company is allowed to hedge for the commodity price fluctuations via future and option contracts. Since the company has a limited cash reserve as well as previously planned payments, it may face financial distress when the net cash balance decreases below zero. Consequently, the company maximizes the expected value of itself by minimizing the expected financial distress cost.


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Citation Formats
M. Alıravcı, “Margin call risk management with furures and options,” M.S. - Master of Science, Middle East Technical University, 2013.