Sep 2021
The IUP Journal of Financial Risk Management
Focus
The next paper, "Feasibility of Creation of Rainfall Risk Market in India: A Perception Analysis", by Bharath V, Jyothi Shivakumar N M and G Kotreshwar, seeks to find out if there is a market for rainfall derivatives in India. To design, create, and trade rainfall risk products like futures and options, perceptional studies on the viability of securitizing rainfall risk are required. The paper is based on firsthand information. The primary data was gathered via a standardized questionnaire that was distributed to selected respondents. The authors believe that there is potential for building rainfall risk markets in India, but stakeholder knowledge is required before such markets can be established.
The third paper, "Pricing of Orchard Forwards", by Rahul Rangotra, uses application of the traditional Cost of Carry (COC) methodology for pricing orchard forwards in India. To begin with, the study addresses the COC model's assumptions as well as the reasons behind the model's non-applicability to non-orchard forwards. Second, with regard to orchard advances in India, the study attempts to create a technique for estimating the inputs necessary to apply the COC model. Estimating the spot price of orchards, information asymmetry between orchard owners/farmers and traders, and calculating the COC are the key challenges in applying the model. Finally, the model is tweaked so that it can be used to compute orchard forward prices.
In the last paper, "Using Petroleum Stock Derivatives for Hedging Oil Price Volatility Risk: A Study of Iranian Firms", by Zahra Ghadiri, Bharath V and G Kotreshwar, the authors contend that proceeds from crude oil exports have a significant influence on the Iranian economy. As a result, hedging is required to stabilize oil income in order to achieve economic stability. The hedging instruments investigated are oil derivative contracts traded on the New York Mercantile Exchange (NYMEX). The study analyzes risk hedging options using econometric approaches in order to achieve the best position efficiency. According to the findings, using derivative contracts would result in a significant reduction in the degree of oil income risks. Financial derivatives, according to the study's findings, are effective methods for decreasing risk, since they lower risk by 59% to 98%. The range of risk reduction is determined by the length of the contract and the methodology used to determine the best hedging ratio. Oil futures can be used by businesses to hedge against oil price volatility. It is advised that long-term futures contracts be used to effectively hedge the oil price risk.
Consulting Editor
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| Article | Price (₹) | ||
| Global Cues and People's Reactions: A Twitter Sentiment Analysis |
100
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| Feasibility of Creation of Rainfall Risk Market in India: A Perception Analysis |
100
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| Pricing of Orchard Forwards |
100
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| Using Petroleum Stock Derivatives for Hedging Oil Price Volatility Risk: A Study of Iranian Firms |
100
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Global Cues and People's Reactions: A Twitter Sentiment Analysis
In the current scenario, every investor has to be alert to local information as well as glocal (global and local) news and cues. Social media and microblogging are some online platforms where the information is shared and gathered quickly involving less cost. Twitter is one such platform, where brief updates are available to the public or a selected circle of contacts. It conveys the author's mood and emotional status. Hence, the content can be regarded as a valid indicator for a temporary, authentic and instantaneous public mood state. The posting of news on social media also triggers stock market movements due to the knee-jerk reactions caused by investor sentiments. This study tries to find the relationship between the sentiments and global cues with respect to the Indian stock market. The large-scale data analysis gives a strong base to witness and predict values by taking into consideration the emotive moods and trends associated with social and economic indicators. The study reveals a significant relationship between public mood as a reaction to global cues and the stock market movement, with special reference to Nifty index. In particular, the Brexit Referendum, FOMC (Federal Open Market Committee) decisions and Bank of Japan monetary policy review are likely to have triggered volatility in the said market.
Feasibility of Creation of Rainfall Risk Market in India: A Perception Analysis
This paper studies the feasibility of rainfall risk market in India. Perceptional studies on feasibility of creation of rainfall risk market are essential to understand the ecosystem of our capital markets to design, develop and trade rainfall-risk products like rainfall futures and options. The study is exploratory in nature because no research has been done on the feasibility of rainfall risk market based on stakeholders'/experts' perceptions. It is based on the primary data collected through a structured questionnaire and circulated among the selected sample of 208 respondents. The respondents are academicians, executives working in insurance/reinsurance companies, professionals working in commodity/stock exchange, stockbroking, and practicing CA/CMA/CS/CFA professionals. The findings indicate that there exists scope for creating rainfall risk markets in India. However, creating awareness amongst the stakeholders is a prerequisite for creation of such markets. The results of the study are likely to chart a road map that lays down a clear path for design and development of rainfall risk markets.
Pricing of Orchard Forwards
The paper analyzes the applicability of the conventional Cost of Carry (COC) model for pricing orchard forwards in India. Firstly, the paper discusses the assumptions of the COC model and the reasons for its non-applicability in orchard forwards. Secondly, it tries to develop a methodology to estimate the inputs required to apply the COC model in the case of orchard forwards in India. The major problems in using the model are estimating the spot price of the orchards, information asymmetry between the orchard owners/farmers and the dealers and assessing the COC. In the end, the model is modified so that it can be applied to calculate the price of orchard forwards.
Using Petroleum Stock Derivatives for Hedging Oil Price Volatility Risk: A Study of Iranian Firms
Oil price volatility is one of the major sources of risk impacting Iranian oil revenues. Stabilization of the oil revenues through hedging is necessary for sustaining a stable economy. Petroleum stock derivatives are of interest for hedging oil price volatility. The hedging instruments studied in the present paper are derivative contracts of New York Mercantile Exchange (NYMEX) oil stocks. Employing econometric methods, the paper evaluates risk hedging strategies to attain the optimum position efficiency. The results indicate that applying derivative contracts would lead to substantial reduction in the level of oil revenue risks.