Vinsamlegast notið þetta auðkenni þegar þið vitnið til verksins eða tengið í það: http://hdl.handle.net/1946/24829
It is now widely accepted that commodity prices fluctuate randomly. Financial risk management is a key issue related to financial risk in commodity markets due to the uncertainty of fluctuations. Managing risk can provide a type of insurance for an operation. Today’s markets are consistently becoming more competitive, and the necessity for firms to be cautious and prepared to handle risk is increasing.
The purpose of this thesis is to look into and evaluate risk management
strategies for commodities of Icelandic energy companies, with an emphasis on using Landsvirkjun as a benchmark. Energy companies face fluctuations in interest rate, foreign exchange and commodity prices. Ideas and methods from risk management are used to set out strategies in a way that serves the firm’s purpose and business motives.
The main tools and strategies of risk management in this thesis are hedging, using derivatives such as futures contracts, swaps and option contracts, as well as modeling tools to price derivatives and simulations to predict future prices and risk. Hedging is a transaction designed to reduce risk, derivatives are financial instruments, whose
returns are derived from other financial instruments and they are commonly used as hedging tools. The Black-Scholes-Merton model is used to price options and the Monte Carlo simulation analysis is used to forecast future price probabilities. The probability of loss is found with the value-at-risk method using the forecast of future returns from
the Monte Carlo simulation analysis and by using historical data for the historical method. The main conclusions are two: First, that there is a great need for risk management in a company that operates in such a risky environment, and derivatives are a feasible option if they are used correctly. The second conclusion is that of the hedging strategies presented in this thesis, option combinations work better to reduce
cost and risk than using a single option strategy.
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