Skip to main content
SpringerLink
Log in

Network modeling of international financialequilibria with hedging

  • Published:
Annals of Operations Research Aims and scope Submit manuscript

Abstract

In this paper, we develop an international financial equilibrium model with hedging inthe form of futures and options contracts. We identify the network structure of the individualsectors' optimization problems out of equilibrium and establish the network structureof the entire international financial economy in equilibrium. We formulate the governingequilibrium conditions as a finite-dimensional variational inequality problem and thenpresent some qualitative properties. Finally, we propose a computational procedure, alongwith convergence results, which resolves the variational inequality problem into networksubproblems with special structure, each of which can then be solved exactly and in closedform.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. T.J. Andersen, Currency and Interest Hedging, New York Institute of Finance, New York, 1993.

    Google Scholar 

  2. F. Black and R. Litterman, Global portfolio optimization, Financial Analysts Journal 48(1992)28 – 43.

    Article  Google Scholar 

  3. A. Charnes and W.W. Cooper, Management Models and Industrial Applications of Linear Programming, Wiley, New York, 1961.

    Google Scholar 

  4. A. Charnes and W.W. Cooper, Some network characterizations for mathematical programming and accounting approaches to planning and control, The Accounting Review 42(1967)24 – 52.

    Google Scholar 

  5. N. Christofides, R.D. Hewins and G.R. Salkin, Graph theoretic approaches to foreign exchange operations, Journal of Financial and Quantitative Analysis 14(1979)481 – 500.

    Article  Google Scholar 

  6. J.C. Cox and M. Rubinstein, Options Markets, Prentice-Hall, Englewood Cliffs, NJ, 1985.

    Google Scholar 

  7. D. Duffie, Futures Markets, Prentice-Hall, Englewood Cliffs, NJ, 1989.

    Google Scholar 

  8. G.M. Korpelevich, The extragradient method for finding saddle points and other problems, Matekon 13(1977)35– 49.

    Google Scholar 

  9. J.M. Mulvey, Nonlinear networks in finance, in: Advances in Mathematical Programming and Financial Planning, Vol. 1, 1987, pp. 253 – 271.

    Google Scholar 

  10. A. Nagurney, Network Economics: A Variational Inequality Approach, Kluwer Academic, Boston, MA, 1993.

    Google Scholar 

  11. A. Nagurney, Variational inequalities in the analysis and computation of multi-sector, multi-instrument financial equilibria, Journal of Economic Dynamics and Control 18(1994)161 – 184.

    Article  Google Scholar 

  12. A. Nagurney and J. Dong, General financial equilibrium modeling with policy interventions and transaction costs, Computational Economics 6(1996)3 – 17.

    Article  Google Scholar 

  13. A. Nagurney, J. Dong and M. Hughes, Formulation and computation of general financial equilibrium, Optimization 26(1992)339 – 354.

    Google Scholar 

  14. A. Nagurney and S. Siokos, Variational inequalities for international general financial equilibrium modeling and computation, Mathematical and Computer Modelling 25(1997)31 – 49.

    Article  Google Scholar 

  15. A. Nagurney and S. Siokos, Dynamics of international financial networks: Modeling, stability analysis, and computation, in: Networks and Knowledge in a Dynamic Economy, eds. M. Beckmann, B. Johansson, F. Snickars and R. Thord, Springer, Berlin, Germany, 1997, in press.

    Google Scholar 

  16. A. Nagurney and S. Siokos, Dynamic multi-sector, multi-instrument financial networks with futures: Modeling and computation, 1996, to appear in Networks.

  17. F. Quesnay, Tableau Economique, 1758, reproduced in facsimile with an introduction by H. Higgs by the British Economic Society, 1895.

  18. A. Rudd and B. Rosenberg, Realistic portfolio optimization, in: TIMS Studies in Management Science, Vol. 11, 1979, pp. 21 – 46.

    Google Scholar 

  19. D.P. Rutenberg, Maneuvering liquid assets in a multi-national company: Formulation and deterministic solution procedures, Management Science 16(1970)671 – 684.

    Article  Google Scholar 

  20. P.A. Samuelson, Spatial price equilibrium and linear programming, American Economic Review 42(1952)283 – 303.

    Google Scholar 

  21. T. Takayama and G.G. Judge, Spatial and Temporal Price and Allocation Models, North-Holland, Amsterdam, The Netherlands, 1991.

    Google Scholar 

  22. S. Thore, Credit networks, Economica 36(1969)42– 57.

    Article  Google Scholar 

  23. S. Thore, Programming the Network of Financial Intermediation, Universitetsforlaget, Oslo, Norway, 1980.

  24. S. Thore, Spatial models of the Eurodollar market, Journal of Banking and Finance 8(1984)51 – 65.

    Google Scholar 

  25. S. Wallace, Solving stochastic programs with network recourse, Networks 16(1986)295 – 317.

    Google Scholar 

Download references

Authors
  1. Anna Nagurney
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Stavros Siokos
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Nagurney, A., Siokos, S. Network modeling of international financialequilibria with hedging. Annals of Operations Research 82, 139–160 (1998). https://doi.org/10.1023/A:1018950300861

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1018950300861

Keywords

Search

Navigation