Authors : Miguel Jimenez-Gomez, Natalia Acevedo-Prins and Erick Lambis-Alandete
Abstract: The main objective of this research is to cover the exchange risk in an exporting company through coverage with futures on the TRM in Colombia and financial options on the currency. For this, the monthly data of the TRM is used from April 2013-March 2018. Monte Carlo Simulation of the scenario without coverage and the scenarios with coverage with the geometric Brownian motion the price of the TRM are modeled and with the Monte Carlo Simulation all possible values are obtained and then the average value is calculated.The results show that the financial options manage to reduce the exchange risk. The expected value with coverage is approximate to the expected value without coverage but the 5% percentile with coverage is greater than without coverage. The foregoing indicates that in the worst scenarios the exporting companies will obtain better prices for the sale of the currencies if they cover.
Miguel Jimenez-Gomez, Natalia Acevedo-Prins and Erick Lambis-Alandete, 2019. Simulation of Exchange Hedges with Financial Options to Mitigate Foreign Exchange Risk. Journal of Engineering and Applied Sciences, 14: 1749-1754.