Abstract

http://ssrn.com/abstract=991261
 
 

References (77)



 
 

Citations (2)



 


 



The Use of Options in Corporate Risk Management


Söhnke M. Bartram


London Business School - Department of Finance; Warwick Business School - Department of Finance

January 7, 2004

Managerial Finance, Vol. 32, No. 2, pp. 160-181, 2006

Abstract:     
This paper investigates the motivations and practice of nonfinancial firms with regard to using financial options in their risk management activities. To this end, it provides a comprehensive account of the existing empirical evidence on the use of derivatives in general and options in particular by nonfinancial corporations across different underlyings and countries. Overall, a significant number of 15%-25% of the firms outside the financial sector use financial options. This reflects the fact that options are very versatile risk management instruments that can be used to hedge various types of exposures, linear as well as nonlinear. In particular, options are a useful component of corporate risk management if exposures are uncertain, e.g. due to price and quantity risk. Depending on the correlation between price and quantity risk, the optimal hedge portfolio consists of a varying combination of linear and nonlinear risk management instruments. Moreover, the accounting treatment as well as liquidity effects can impact the choice of derivative instrument. At the same time, there may be agency-related incentives to use options because of their role to present dual bets on both direction as well as future volatility of the underlying.

Number of Pages in PDF File: 30

Keywords: Options, derivatives, risk management, exposure, corporate finance

JEL Classification: G3, F4, F3

Accepted Paper Series


Download This Paper

Date posted: June 5, 2007 ; Last revised: March 10, 2014

Suggested Citation

Bartram, Söhnke M., The Use of Options in Corporate Risk Management (January 7, 2004). Managerial Finance, Vol. 32, No. 2, pp. 160-181, 2006. Available at SSRN: http://ssrn.com/abstract=991261

Contact Information

Söhnke M. Bartram (Contact Author)
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 (20) 7000 8270 (Phone)
+44 (20) 7000 8201 (Fax)
Warwick Business School - Department of Finance ( email )
Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)
HOME PAGE: http://go.warwick.ac.uk/sbartram/
Feedback to SSRN


Paper statistics
Abstract Views: 2,239
Downloads: 737
Download Rank: 17,537
References:  77
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.281 seconds