A model for optimizing options and futures

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-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 languageEnglish
Pages (from-to)399-404
Number of pages6
JournalInternational Transactions in Operational Research
Volume2
Issue number4
DOIs
Publication statusPublished - 1995

Keywords

  • Finance
  • investment analysis
  • non-linear programming
  • stochastic processes

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