1 option
Welfare Gains from Market Insurance: The Case of Mexican Oil Price Risk / Chang Ma, Fabian Valencia.
- Format:
- Book
- Government document
- Author/Creator:
- Ma, Chang.
- Series:
- IMF Working Papers; Working Paper ; No. 2018/035
- IMF Working Papers
- Language:
- English
- Subjects (All):
- Petroleum products--Prices--Mexico.
- Petroleum products.
- Welfare economics.
- Financial risk management.
- Physical Description:
- 1 online resource (40 pages)
- Edition:
- 1st ed.
- Place of Publication:
- Washington, D.C. : International Monetary Fund, 2018.
- Summary:
- Over the past two decades, Mexico has hedged oil price risk through the purchase of put options. We examine the resulting welfare gains using a standard sovereign default model calibrated to Mexican data. We show that hedging increases welfare by reducing income volatility and reducing risk spreads on sovereign debt. We find welfare gains equivalent to a permanent increase in consumption of 0.44 percent with 90 percent of these gains stemming from lower risk spreads.
- Contents:
- Cover
- Contents
- I Introduction
- II Mexico's Oil Hedging Program
- III Benefits/Costs of Hedging in a Two-period Model
- IV Model Economy
- A Benchmark Model with Defaultable Debt and Put Options
- B An Economy without Put Options
- C Recursive Equilibrium
- V Quantitative Analysis
- A Calibration
- B Welfare Gains from Hedging
- C Robustness Check
- VI Extensions
- A Selling Oil Forward
- B Risk Averse Investors
- VII Conclusion
- References
- Appendices
- I Normalized Economy
- II Proofs
- A Proof of Proposition 1
- B Proof of Proposition 2
- C Proof of Proposition 3
- D Proof of Proposition 4
- III Algorithm
- IV Estimation of Oil Price Process
- V Option Pricing
- Tables
- 1 Actual Strike Prices from Options
- 2 Parameters
- 3 Stochastic Steady State in the Hedging and No-hedging Economies
- 4 Sensitivity Analysis
- 5 Welfare Gains from Selling Oil Forward
- 6 Risk Averse Investors: Hedging and No-hedging Economies
- Figures
- 1 Oil Production, Oil Prices, and Sovereign Spreads
- 2 Mexico's Oil Hedging Program
- 3 Two-period Model
- 4 Welfare Gains, Borrowing, and Probability of Default
- 5 Bond Price and Sovereign Spreads
- 6 Event Windows
- 7 Welfare Gains under Different Cost Premiums
- 8 Two-period Model with Forwards.
- Notes:
- Includes bibliographical references.
- Description based on publisher supplied metadata and other sources.
- Description based on print record.
- ISBN:
- 9781484344293
- 1484344294
- 9781484344316
- 1484344316
- OCLC:
- 1029485519
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