Contingent reserves management
an applied framework
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Author
Contributions
- Panageas, Stavros - Contributor
- Massachusetts Institute of Technology. Dept. of Economics - Contributor
Publication
2004 - Massachusetts Institute of Technology, Dept. of Economics, Cambridge, MA, Massachusetts
Language
English
Word Count
6,250 words, Guess
Page Count
25 pages
Identifiers
- Internet Archivecontingentreserv00caba
- OCLC Control Number57623873
- Open LibraryOL24639762M
Description
One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden stop mechanism. We illustrate this point with a simple quantitative hedging model, where optimally used options and futures on the S&P100's implied volatility index (VIX), increases the expected reserves available during sudden stops by as much as 40 percent. Keywords: Sudden stops, reserves, portfolio, VIX, hedging, options, futures. JEL Classifications: E2, E3, F3, F4, G0, C1.
Subjects
Series Statement
- Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 04-32
- Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 04-32.
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