Wine price risk management: International diversification and derivative instruments

Apostolos Kourtis; Raphael Markellos; Dimitrios Psychoyios

doi:10.1016/j.irfa.2012.02.001

Wine price risk management: International diversification and derivative instruments

Apostolos Kourtis, Raphael Markellos, Dimitrios Psychoyios

Research output: Contribution to journal › Article › peer-review

33 Citations (Scopus)

Abstract

Variations in 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. We also show that diversification across varieties of French wine is not 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 describe appropriate equilibrium models for pricing wine futures and option contracts.

Original language	English
Pages (from-to)	30-37
Number of pages	8
Journal	International Review of Financial Analysis
Volume	22
DOIs	https://doi.org/10.1016/j.irfa.2012.02.001
Publication status	Published - Apr 2012

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10.1016/j.irfa.2012.02.001

Cite this

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title = "Wine price risk management: International diversification and derivative instruments",

abstract = "Variations in 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. We also show that diversification across varieties of French wine is not 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 describe appropriate equilibrium models for pricing wine futures and option contracts.",

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AU - Markellos, Raphael

AU - Psychoyios, Dimitrios

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AB - Variations in 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. We also show that diversification across varieties of French wine is not 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 describe appropriate equilibrium models for pricing wine futures and option contracts.

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