|Author:||Chu, Kwok-keung Eric|
|Title:||Hedging of trading gold asset with markov decision processes|
Hong Kong Polytechnic University -- Dissertations
Department of Management
|Pages:||vi, 86 leaves : ill. ; 30 cm|
|Abstract:||This dissertation studies a jewellery company which is holding a major portion of its assets in the form of pure gold. The company is hedging its pure gold asset in the gold market so that the total asset value of the company in terms of currency would not be affected by the fluctuation of gold prices in the international gold market. There are three major objectives in considering the hedging problem: i) to protect the company's overall asset value through hedging; ii) to gain profit from the hedging program by adjusting its hedging ratio; iii) and to minimise the cash premium requirement under the hedging program. This study attempts to provide an objective decision tool so that the management of the company could focus on actual business activities and reduce the amount of effort (and risk) in considering the hedging decisions. The hedging decisions are devised through the use of discrete Markov Decision Processes over an infinite horizon based on the hedge level, the price trend, and the subsequent hedging decisions. The performance of the model was compared with past actual decisions, decisions with time series trends, and different trend components of the same model. When considering the relationship of the daily, weekly, and monthly trends to the hedging decision, it is shown that daily gold price movements alone provided moderate profit and stable premium requirement over different periods of time including sharp trend movements, whereas other trend combinations exhibit different results under different situations.|
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