Wine Price Risk Management: International Diversification and Derivative Instruments

23 Pages Posted: 9 Nov 2010 Last revised: 10 Sep 2012

See all articles by Apostolos Kourtis

Apostolos Kourtis

University of East Anglia (UEA) - Norwich Business School

Raphael N. Markellos

University of East Anglia (UEA) - Norwich Business School

Dimitris Psychoyios

University of Piraeus - Department of Industrial Management

Date Written: February 28, 2012

Abstract

Variations in fine wine prices can be prominent and have widespread economic and financial implications. Although fine wine investments are dominated by French wines, we demonstrate that significant international diversification benefits exist for investors in Italian, Australian and Portuguese fine wines. This is important since we also find that diversification across varieties of French wine is not likely to be that effective. We propose the development of futures and options contracts on standardized wine price indices in order to enhance market completeness and to address the risk management needs of all market participants. Several popular continuous time processes are used to approximate empirically the dynamics of four fine wine price indices. On the basis of our results, we recommend appropriate equilibrium models for pricing fine wine futures and option contracts.

Keywords: Fine Wine, International Diversification, Derivatives, Option Pricing

JEL Classification: G1, F3, Q1

Suggested Citation

Kourtis, Apostolos and Markellos, Raphael N. and Psychoyios, Dimitrios, Wine Price Risk Management: International Diversification and Derivative Instruments (February 28, 2012). International Review of Financial Analysis, Vol. 22, pp. 30-37, 2012. Available at SSRN: https://ssrn.com/abstract=1705515 or http://dx.doi.org/10.2139/ssrn.1705515

Apostolos Kourtis

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Raphael N. Markellos (Contact Author)

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Dimitrios Psychoyios

University of Piraeus - Department of Industrial Management ( email )

80, Karaoli & Dimitriou Str.
18534 Piraeus
Greece

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