A model for optimizing options and futures

B. A. Murtagh; R. W. Murtagh

doi:10.1016/0969-6016(95)00020-8

A model for optimizing options and futures

B. A. Murtagh^*, R. W. Murtagh

^*Corresponding author for this work

Macquarie Graduate School of Management

Research output: Contribution to journal › Article › peer-review

Abstract

This paper discusses the use of options and futures in minimizing the domestic currency cost of repaying a foreign currency debt. Because of the significant uncertainty in predicting the exchange rate at some future time, we develop a methodology for exploring the range of predictions for which it is optimal to hedge with futures, the range for which it is optimal to use options, and the range for which it is optimal to use a combination of both. Implementation of a nonlinear integer stochastic programming model is described and computational experience discussed.

Original language	English
Pages (from-to)	399-404
Number of pages	6
Journal	International Transactions in Operational Research
Volume	2
Issue number	4
DOIs	https://doi.org/10.1016/0969-6016(95)00020-8
Publication status	Published - 1995

Keywords

Finance
investment analysis
non-linear programming
stochastic processes

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10.1016/0969-6016(95)00020-8

Cite this

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abstract = "This paper discusses the use of options and futures in minimizing the domestic currency cost of repaying a foreign currency debt. Because of the significant uncertainty in predicting the exchange rate at some future time, we develop a methodology for exploring the range of predictions for which it is optimal to hedge with futures, the range for which it is optimal to use options, and the range for which it is optimal to use a combination of both. Implementation of a nonlinear integer stochastic programming model is described and computational experience discussed.",

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AB - This paper discusses the use of options and futures in minimizing the domestic currency cost of repaying a foreign currency debt. Because of the significant uncertainty in predicting the exchange rate at some future time, we develop a methodology for exploring the range of predictions for which it is optimal to hedge with futures, the range for which it is optimal to use options, and the range for which it is optimal to use a combination of both. Implementation of a nonlinear integer stochastic programming model is described and computational experience discussed.

KW - Finance

KW - investment analysis

KW - non-linear programming

KW - stochastic processes

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A model for optimizing options and futures

Abstract

Keywords

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