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When the South African Futures Exchange (SAFEX) Agricultural Products Division (APD) was formed in the early 1990s after the demise of the Marketing Boards, the support and direct participation of producers on the exchange was core to its long term success. A tremendous amount of energy and cost was invested by SAFEX and brokers to educate and sign up primary producers. Most agribusinesses (excooperatives) also had broking divisions. This campaign was very successful and a large percentage of producers, particular of maize and wheat, opened SAFEX accounts through brokers. It was not unusual for many of them to open more than one account with different brokers. Collectively, they had a very important impact on the market. Fifteen years after the launch of the wheat contract (in 1998), this is no longer the case. Industry sources have it that many, if not most, producers have either closed their accounts, have an inactive account, or have scaled down their trading activities. This leads to the hypothesis that direct participation by producers on the JSE/SAFEX Commodity Division is declining. The questions that arise from this observation are:  Are producers distancing themselves from SAFEX (or the other way around)? or,  Has the industry matured and progressed into a new era? This research had the objectives to:  Determine the estimated percentage of producers that directly traded on SAFEX during the initial years and compare the data to present numbers. Based on the outcome of the primary data collected, to determine if there is indeed a trend.  If correct, to determine what the reasons for this could be. Has there been a shift in hedging practices? Are brokers offering additional services which make it unnecessary for producers to operate directly on the exchange? Wheat producers in the Western Cape were selected as the target group for various reasons, including the province’s geographical isolation, its importance as a wheat production area and the importance of wheat in the gross income generated by producers. The survey firstly established the importance of wheat in the Western Cape grain production areas. No doubt, income derived through wheat production is still very important throughout the Western Cape, but in certain areas it is absolutely crucial. Next, the survey attempted to determine how and when producers ‘price’ (sell) wheat. The survey then aimed to establish what the most important factors are that influence producers’ pricing strategy. Producers ranked growing conditions as the number one factor in taking a pricing decision, followed by production costs. Furthermore, producers do adjust their marketing strategy but there seems to be a difference of opinion as to whether it is on their own accord or on advice of their brokers. The survey not only depended on producer data but cross-referenced with brokers (traders and agribusinesses). Based on overall feedback, the analysis determined vi that on average in the Western Cape 10 – 20% of wheat producers had SAFEX accounts, while in selected areas it was as high as 37 – 50%. It was also important to determine to what extent SAFEX trading activity had decreased, if at all. This question only applied to those respondents that said they did have a SAFEX account and their activities had decreased. The answer revealed that 91% of respondents had stopped trading altogether. Having now established that a fairly large number of producers had accounts on which most had ceased their activities, the question is why. Cash flow requirements are the single biggest reason why producers have reduced (or completely stopped) their participation on SAFEX. The second reason was that a producer could achieve the same benefits and more through the services offered by the grain traders and agribusinesses, compared to trading directly on SAFEX. It should not be forgotten that the trader could only offer these service if he or she does a deal, back-to-back, on SAFEX. This is part of the reason why all traders and agribusinesses have a SAFEX account. The survey concluded with what might be singled out as one of the most important questions (given what had been determined up to this point): Do producers believe brokers offer all of the marketing options that could be achieved by trading direct on SAFEX? With the benefit of already having analysed the response to the earlier questions, the answer might have been expected. However, the response was overwhelming: 97% of respondents said that brokers offer all of the marketing options they were interested in. It could therefore be said that the decline in direct SAFEX participation by Cape wheat producers is the direct result of the all-inclusive services offered by traders and agribusinesses. Producers sign a forward contract with their brokers while the brokers would offset their risk on SAFEX. An element of caution, however, needs to be expressed. Given the importance of wheat in the Western Cape, and particularly in the Swartland, producers should not relinquish their responsibility to acquire or maintain a minimum amount of knowledge on the functioning of SAFEX. Irrespective of whether producers deal directly on SAFEX or through their brokers, knowledge now and in the future will hold the key to their marketing performance and should not be replaced by using brokers. / Dissertation (MSc Agric)--University of Pretoria, 2013. / gm2014 / Agricultural Economics, Extension and Rural Development / unrestricted

The use of currency options has been grown widely during the latest years. This paper tries to answer whether hedge strategies using currency options are superior to forward exchange contracts or not.

With the rapid increase in the usage of barrier options on the OTC markets, pricing and especially hedging of these exotic instruments became an important field of research. This paper aims to explain, apply and compare current methods used for pricing and hedging barrier options with a simulation approach. An overview of most popular methods for pricing and hedging is presented in the first part, followed by application of these pricing methods and comparing the performances of different dynamic and static hedging techniques in Black-Scholes environment by simulation in the second part. In the third part different models such as ARCH type and Stochastic Volatility are used with different jump terms to relax the assumptions of the Black-Scholes and examine the effects of these incomplete models on both pricing and performance of different hedging techniques. In the fourth part diffusion models such as Constant Variance Elasticity, Heston Stochastic Volatility and Merton Jump Diffusion are used to complete the picture.

This thesis empirically evaluates a geometric Brownian motion and a stochastic volatility model for modeling futures prices and hedging Asian call options on the electricity spot price. Estimation of parameters for the models is done based on historical futures prices of futures contracts with a one month delivery period using nonlinear regression and Maximum Likelihood techniques. The models are tested on 2014 data and tracking error for each model is presented. The tracking error is investigated through the median value, the spread between minimum and maximum value along with value at risk at a 95% level. In addition, a third model for modeling spot and futures prices is presented theoretically. It is an exponential additive model with the advantage that it models the future price process from the spot price, instead of modeling the future price process immediately. This bypasses the issue of no information about the future price process during the delivery period, when there is no prices of the futures contracts. The aim of this thesis is to compare the simpler geometric Brownian motion to the more complex stochastic volatility model. It is found that the stochastic volatility model performs better when tested on out-of-sample data. The geometric Brownian motion tends to underestimate the electricity prices, despite that 2014 had low pricest compared to the other years in the data sample. In addition, the approximation of the distribution of the future price process under the geometric Brownian motion model gave a bad fit and led to difficulties when estimating the parameters. The stochastic volatility model produced more stable results and gave a better fit for the distribution.

<p>Recently, both company executives as well as national media have claimed that short currency exchange rate fluctuations are negatively affecting the stock returns of certain firms. However, most previous studies focusing on companies in the US and Asia have been unable to find empirical support for a statistically significant linkage between firm value and exchange rate risk. By using a quantitative method with a deductive approach,the present research investigates if currency exchange rate movements impact the stock return of European based car companies with market interests in the US. By selecting French Renault and Peugeot, German Audi and BMW and Swedish Saab and Volvo, we were able to analyze three currencies exchange rates in our study: SEK/USD, SEK/Euro and Euro/USD. In addition, we included three macroeconomic factors: GDP, stock market index and Oil price to perform a multiple regression analysis. In consistency with the earlier studies, our results indicate that for five out of the six investigated companies, short movements in the three exchange rates do not significantly affect the stock returns of the companies investigated. By analyzing the annual report of the investigated companies, we found that derivatives instruments such as currency option, foreign exchange forwards, currency futures and currency swaps were used to hedge exchange risk. This might be one of the reasons why it was difficult to capture exchange rate risk. The fact that BMW was the only company showing a significant effect could indicate that the company is not applying the accurate hedging strategy. Another reason might be that the company is more exposed to exchange risk due to its large exporting activity compared to the other investigated companies.</p>

Recently, both company executives as well as national media have claimed that short currency exchange rate fluctuations are negatively affecting the stock returns of certain firms. However, most previous studies focusing on companies in the US and Asia have been unable to find empirical support for a statistically significant linkage between firm value and exchange rate risk. By using a quantitative method with a deductive approach,the present research investigates if currency exchange rate movements impact the stock return of European based car companies with market interests in the US. By selecting French Renault and Peugeot, German Audi and BMW and Swedish Saab and Volvo, we were able to analyze three currencies exchange rates in our study: SEK/USD, SEK/Euro and Euro/USD. In addition, we included three macroeconomic factors: GDP, stock market index and Oil price to perform a multiple regression analysis. In consistency with the earlier studies, our results indicate that for five out of the six investigated companies, short movements in the three exchange rates do not significantly affect the stock returns of the companies investigated. By analyzing the annual report of the investigated companies, we found that derivatives instruments such as currency option, foreign exchange forwards, currency futures and currency swaps were used to hedge exchange risk. This might be one of the reasons why it was difficult to capture exchange rate risk. The fact that BMW was the only company showing a significant effect could indicate that the company is not applying the accurate hedging strategy. Another reason might be that the company is more exposed to exchange risk due to its large exporting activity compared to the other investigated companies.

Kentucky plays a vital role in the beef supply chain. The cow/calf producers,back-grounding operations, and order buying industry are important parts of Kentucky'sagricultural economy. Basis risk is an issue that affects these groups in a negative way. Agood estimate of the expected basis must be available to make hedging efficient.Simulations were performed on Kentucky price data to determine the effectiveness ofshort hedging for Kentucky producers. A model was also used to describe some of thefactors that determine basis levels. The research revealed that it is difficult to predictbasis within an acceptable range to make short hedging with futures efficient. Eventhough short hedging reduced variability in net price, it was difficult to lock in a profit.Various options and spread strategies were presented as alternative hedging tools thatwould protect cattle producers from unexpected price declines.