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In this study, we propose a Gram-Charlier expansion approach to investigate the impact of skewness and kurtosis on production and hedging decisions. Consistent with the existing literature, we find that skewness and kurtosis do not affect decisions regarding optimal production; however, they significantly influence optimal hedging decisions. We observe that positive skewness with platykurtic spot prices or negative skewness with leptokurtic spot prices often leads to over-hedging when the initial forward contract price exceeds its expected value. Conversely, under-hedging is expected when the initial forward contract price falls below its expected value. In other conditions, skewness can either promote or impede speculative future trading. Using the Gram-Charlier expansion of the spot price density function, we find that optimal future positions depend on forward prices, the hedgers’ risk preference, and the spot price distribution. Simulations validate our findings on the impact of skewness and kurtosis on future hedging. Finally, we analyze of a cotton storage and forward contracting dataset to illustrate the application of our methodology and support our theoretical results.

Firms that trade a commodity that has a random price can reduce risk by trading forward. In “Forward Commodity Trading with Private Information,” Edward J. Anderson and Andrew B. Philpott consider a setting in which a buyer and a seller of a divisible commodity have different private information on the probability distribution of its future price. This situation arises in electricity pool markets where contracts for differences are traded by buyers and sellers of electricity to hedge future price risk. The paper compares several mechanisms for settling the price and quantity of such a contract when buyers and sellers have private information. These include Nash bargaining and supply- function equilibrium models. In the latter setting, a player can deduce the other player’s private information from its offered supply function and use this to improve its own supply function. Examples are given to show that this strategy, when used by both firms, may make both firms worse off in equilibrium. We consider the use of forward contracts to reduce risk for firms operating in a spot market. Firms have private information on the distribution of prices in the spot market. We discuss different ways in which firms may agree on a bilateral forward contract: either through direct negotiation or through a broker. We introduce a form of supply-function equilibrium in which two firms each offer a supply function, and the clearing price and quantity for the forward contracts are determined from the intersection. In this context, a firm can use the offer of the other player to augment its own information about the future price. The online appendices are available at https://doi.org/10.1287/opre.2018.1777 .

We analyze the effects of electricity market mergers in an environment where firms endogenously choose their level of forward contracts prior to competing in the wholesale market. We apply our model to Alberta’s wholesale electricity market. Firms have an incentive to reduce their forward contract coverage in the more concentrated post-merger equilibrium. We demonstrate that endogenous forward contracting magnifies the price increasing impacts of mergers, resulting in larger reductions in consumer surplus. Current market screening procedures used to analyze electricity mergers consider firms’ pre-existing forward commitments. We illustrate that ignoring the endogenous nature of firms’ forward commitments can yield biased conclusions regarding the impacts of market structure changes such as mergers. In particular, we show that the price effects of mergers can be largely underestimated when forward contract quantities are held at pre-merger levels. Whether the profits of the merged firm are greater with fixed or endogenous forward quantities is ambiguous.

Farmers use forward contracts to eliminate adverse price and basis movements prior to harvest. Since late 2007, the local basis for Kansas wheat has changed dramatically relative to historic levels, causing greater risk exposure for elevators offering forward contracts. The result has been an increase in the cost of forward contracting paid by farmers from $0.086 per bushel to $0.327 per bushel. The factors driving this increase in costs are basis volatility, wheat futures harvest price, the information available in the market as harvest approaches, and realized returns to the elevator from forward contracting in previous years.

Maritime fuel management (MFM) controls the procurement and consumption of the fuels used on board and therefore manages one of the most important cost drivers in the shipping industry. At the operational level, a shipping company needs to manage its fuel consumption by making optimal routing and speed decisions for each voyage. But since fuel prices are highly volatile, a shipping company sometimes also tactically procures fuel in the forward market to control risk and cost volatility. From an operations research perspective, it is customary to think of tactical and operational decisions as tightly linked. However, the existing literature on MFM normally focuses on only one of these two levels, rather than taking an integrated point of view. This is in line with how shipping companies operate; tactical and operational fuel management decisions are made in isolation. We develop a stochastic programming model involving both tactical and operational decisions in MFM in order to minimise the total expected fuel costs, controlled for financial risk, within a planning period. This paper points out that after the latest regulation of the Sulphur Emission Control Areas (SECA) came into force in 2015, an integration of the tactical and operational levels in MFM has become important for shipping companies whose business deals with SECA. The results of the computational study show that isolated decision making on either tactical or operational level in MFM will lead to various problems. Nevertheless, the most severe consequence occurs when tactical decisions are made in isolation.

This paper proposes a novel approach to optimizing the structure of the electricity market by mitigating market power through the use of forward contracts. The IEEE 30 node test system is used as a case study for the paper, which employs nodal pricing and a Cournot model with recursive optimization. The findings show that forward contracts can reduce market power and lead to a more competitive market structure with fewer participants. The study emphasizes the importance of successor companies having a well-balanced mix of generation technology. Six players with a different generational mix are optimal in the constrained nodal pricing scenario, while five players with slightly different mixes are optimal in the Cournot case study. These findings have important implications for policymakers and industry stakeholders involved in the design and implementation of efficient electricity markets. Market power can be reduced by using forward contracts and establishing an appropriate number of market participants, resulting in more efficient and sustainable electricity markets. Overall, this study provides useful insights for improving electricity market structures and increasing competition in the electricity sector.

Due to financial crisis many entrepreneurs suffered heavy losses on currency options and forward contracts. Tax authorities tend to disallow deduction of those losses from the taxable income. Many cases ended up in administrative courts, resulting in judicature controversies on the issue in question. This paper is the first of four in a cycle. The aim of the whole cycle will be to analyze deeply these controversies and suggest the proper interpretation of the legal provisions, determining whether losses on currency options and forward contracts should or should not be regarded as tax-deductible expenses. The aim of this paper is to determine the scope of the problems to solve as well as to analyze the legal character of the loss on non-deliverable currency options and forward contracts. Therefore this legal character has been determined in the light of Polish corporate income tax act. What is more, the problems with the interpretation of these losses as indirect deductible expenses have been solved.

Increasing supply chain uncertainty due to market volatility has heightened the need for more flexible procurement strategies. While procurement through long-term forward contracts provides supply stability and cost predictability, it limits adaptability. Option contracts offer procurement flexibility, but require additional upfront premiums. Meanwhile, the spot market enables real-time purchasing without prior commitments, enhancing flexibility but exposing buyers to price volatility. Despite the growing adoption of portfolio procurement—combining forward contracts, option contracts, and spot market purchases—the existing research primarily examines these channels in isolation or in limited combinations, lacking an integrated perspective. This study addresses this gap by developing a comprehensive procurement model that simultaneously optimizes procurement decisions across all three channels under uncertain demand and fluctuating spot prices. Unlike prior studies, which often analyze one or two procurement channels separately, our model presents a novel, holistic framework that balances cost efficiency, risk mitigation, and adaptability. Our findings demonstrate that incorporating the spot market significantly enhances procurement flexibility and profitability, particularly in environments with high demand uncertainty and price volatility. Additionally, sensitivity analysis reveals how fluctuations in spot prices and demand uncertainty influence optimal procurement decisions. By introducing a new, practical approach to portfolio procurement, this study provides managerial insights that help businesses navigate complex and uncertain supply chain environments more effectively. However, this study assumes unlimited spot market capacity and reliable suppliers, highlighting a limitation that future research should address.

Suppliers and large buyers of electricity often sign load-following forward contracts (LFFCs). A LFFC obligates an electricity supplier to deliver at a pre-specified unit price a fraction of the buyer’s ultimate demand for electricity. We show that relative to more standard (“swap”) forward contracts, LFFCs can reduce the variation in the wholesale price of electricity. However, LFFCs also can increase the expected wholesale price and thereby reduce expected consumer surplus and total surplus.

Tradable allowances have received considerable attention in recent years. One emerging issue is their interaction with electricity markets. This paper extends the model of Allaz and Vila (1993) by incorporating emissions trading with forward and spot markets for electricity. We focus on the effects of strategic forward position and initial allowances allocation on the equilibrium outcomes. We find that firms with a dirty portfolio would have stronger incentives to take a long position in the forward market to raise the electricity price. Increasing the amount of allowances assigned to clean firms leads to a reduction in electricity and allowance prices.