Dr Strangelove or How I Learned to Stop Worrying and Love the Commodity.

Slides:

Advertisements

Similar presentations

EC Strategy Implementation Coping with Transformation Dick Scudder.

Advertisements

Options and Futures Faculty of Economics & Business The University of Sydney Shino Takayama.

Chapter Outline Hedging and Price Volatility Managing Financial Risk

Risk Management and Derivatives. Volatility Volatility in returns is a classic measure of risk Perfect Market More systematic risk leads to more return.

Managing Commodity Price Risk with Futures & Options.

Paul Sacks, CIO, Aurum Options Strategies, LLC Shanghai Derivatives Market Forum May 29, 2014 Application of Gold Options in Enterprise Risk Management.

Vicentiu Covrig 1 Options Options (Chapter 19 Jones)

Hedging Foreign Exchange Exposures. Hedging Strategies Recall that most firms (except for those involved in currency-trading) would prefer to hedge their.

13 Management of Transaction Exposure Chapter Objective:

Using Options to Enhance Marketing

Introduction to Derivatives and Risk Management Corporate Finance Dr. A. DeMaskey.

CORPORATE FINANCIAL THEORY Lecture 10. Derivatives Insurance Risk Management Lloyds Ship Building Jet Fuel Cost Predictability Revenue Certainty.

CHAPTER 18 Derivatives and Risk Management

Vicentiu Covrig 1 Options Options (Chapter 18 Hirschey and Nofsinger)

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Futures Markets and Risk Management CHAPTER 17.

Foreign Exchange Chapter 11 Copyright © 2009 South-Western, a division of Cengage Learning. All rights reserved.

International Finance Chapters 12, 13, and 14 Foreign Exchange Exposure.

Derivatives Markets The 600 Trillion Dollar Market.

Vicentiu Covrig 1 Options and Futures Options and Futures (Chapter 18 and 19 Hirschey and Nofsinger)

Chapter 13 Financial Derivatives. © 2004 Pearson Addison-Wesley. All rights reserved 13-2 Hedging Hedge: engage in a financial transaction that reduces.

BONUS Exotic Investments Lesson 1 Derivatives, including

CME Group and Informa Economics May 16, 2013 Pan American Grain and Oilseed Conference.

THREE WAYS TO BUY A STOCK. THREE WAYS TO BUY A STOCK Options involve risk and are not suitable for all investors. For more information, please read the.

1 e-Commerce Challenges to Traditional Revenue Management Brenda Barnes Vice President, Revenue Management Delta Air Lines.

Marketing in Today’s World

21 Risk Management ©2006 Thomson/South-Western. 2 Introduction This chapter describes the various motives that companies have to manage firm-specific.

AIM How can we use derivative investments to enhance our portfolio? DO NOW What are stock options? OPTIONS AND FUTURES.

Great Plains Veterinary Educational Center PRM Price Risk Management Protection of Equity (Just The Basics) Part One.

Marketing Management 1 st of June Marketing Channels.

Derivatives and Risk Management Chapter 18  Motives for Risk Management  Derivative Securities  Using Derivatives  Fundamentals of Risk Management.

An Introduction to Derivative Markets and Securities

Derivative securities Fundamentals of risk management Using derivatives to reduce interest rate risk CHAPTER 18 Derivatives and Risk Management.

13-1 Hedging Hedge: engage in a financial transaction that reduces or eliminates risk Basic hedging principle: Hedging risk involves engaging in a financial.

© 2007 Thomson Delmar Learning, a part of the Thomson Corporation Risk Management in Agriculture: A Guide to Futures, Options, and Swaps Lowell B. Catlett.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 9 Derivatives: Futures, Options, and Swaps.

CMA Part 2 Financial Decision Making Study Unit 5 - Financial Instruments and Cost of Capital Ronald Schmidt, CMA, CFM.

3.10 Employ product-mix strategies to meet customer expectations Performance Indicator: Describe the nature of product bundling 3.00 Understand product/service.

© 2004 Pearson Addison-Wesley. All rights reserved 13-1 Hedging Hedge: engage in a financial transaction that reduces or eliminates risk Basic hedging.

Chapter 29 – Applications of Futures and Options BA 543 Financial Markets and Institutions.

Marketing Essentials Chapter 5.  Our nation is built upon freedom ◦ Freedom  What to purchase  Where to work  How to spend our money  To organize.

Financial Risk Management of Insurance Enterprises Options.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter Five Building Competitive Advantage Through Business- Level Strategy.

©2000 Talus Solutions, Inc. All Rights Reserved. March 23, 2000 E-Commerce Revenue Management Challenges Robert L. Phillips.

Derivatives and Risk Management Chapter 18  Motives for Risk Management  Derivative Securities  Using Derivatives  Fundamentals of Risk Management.

Risk Management and Hedging. Risk Management - Hedging “Hedge”: Take a position that offsets a risk “Risk”: Uncertainty regarding the value of the underlying.

INTRODUCTION TO DERIVATIVES Introduction Definition of Derivative Types of Derivatives Derivatives Markets Uses of Derivatives Advantages and Disadvantages.

1 Agribusiness Library Lesson : Options. 2 Objectives 1.Describe the process of using options on futures contracts, and define terms associated.

Click to edit title. REVENUE MANAGEMENT AND DYNAMIC PRICING IN BRUSSELS AIRLINES.

Vicentiu Covrig 1 An introduction to Derivative Instruments An introduction to Derivative Instruments (Chapter 11 Reilly and Norton in the Reading Package)

Options. INTRODUCTION One essential feature of forward contract is that once one has locked into a rate in a forward contract, he cannot benefit from.

Film History Week 10 Dr. Lavery Stanley Kubrick ( ) American "[Like the monolith in 2001, Stanley Kubrick] was a force of supernatural intelligence,

Stanley Kubrick’s films are best described as dazzling. Known for controversial masterpieces like Lolita, A Clockwork Orange, Paths of Glory, The Shining,

E-Tourism Nicos Rodosthenous PhD 25/04/ /4/20131Dr Nicos Rodosthenous.

Vocab 3 Multiple Choice Practice Vocab 1 Vocab 2 Marketing Strategy Concepts Midterm Review Game.

MINERALS MARKETING By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST.

Chapter 16, Section 3.  Understand what a futures contract is, and how and why people use them  Learn the meaning of “puts” and “calls,” and how investors.

Advanced Marketing Strategies. Selective Hedging Protecting prices when futures is against you Cashing in when futures favor you Increases your overall.

Or the 4 Ps of marketing.  The marketing mix or 4 Ps of marketing: ◦ Price ◦ Product ◦ Promotion ◦ Place  Decisions about these are based on the results.

Chapter 19 Pricing Concepts. What is Price? The value attached to the product or service Value: the “worth” based on perceived benefits What is given.

CHAPTER 18 Derivatives and Risk Management

CHAPTER 18 Derivatives and Risk Management

Financial Risk Management of Insurance Enterprises

Financial Markets and Financial Products

Options (Chapter 19).

CHAPTER 18 Derivatives and Risk Management

Derivatives and Risk Management

Derivatives and Risk Management

Presentation transcript:

Dr Strangelove or How I Learned to Stop Worrying and Love the Commodity

Dr Strangelove Will Tell You: n Cyberspace Poses a Great Marketing Opportunity: Do Not Get Left Out n Airline Engagement Model Destroys the Purity of Our Vital Revenue Essence n The KEY to Working Together is to Start Valuing Something Being Given Away for Free Today n How to Revenue Manage Negotiated Programs n Hugely Benefits the Airline and Allows Airlines to Profitably Distribute Product in Cyberspace

2001: A CyberSpace Odyssey n Reach Out and Touch People u eCommerce could become Primary Method of Selling Products in the 21st Century u New ways of Distributing Product, Interacting with Customers and Providing Services n Lets focus on Internet Ticket Auction Sites u Format is Appealing to the Cost-Conscious u Well Designed Auction is an Excellent Price Discovery Tool

n Treating Auction Sites as a Negotiated Program n Negotiated Programs are: u Direct Competition to our Revenue Managed Distribution Channels u Threaten Market Segmentation Assumptions u The Dilution Droogs A Clockwork Orange The Violence We Do to Ourselves

A Revenue Management Horror Story

Eyes Wide Shut Freud and Your VP of Revenue Management n The KEY is Managing Negotiated Programs n RM has Ignored Negotiated Programs u Shutting our eyes is easier than facing it n The Problem with Negotiated Programs is the Establishing a Ticket Price in Advanced n That Agreement has Financial Value

n Think Commodity: in the Negotiated Agreement you are Agreeing to a Strike Price on a Block of Ticket Commodities. n The Agreement is a Financial Instrument! u Ticket = Forward Contract u Agreement = Call Option on Ticket u Booking = Call Options on Ticket n Especially if you use Block Space Spartacus Its a Call Option, Stupid!

Lolita The Illicit Romance between Airlines and Consolidators n Negotiated Agreements are Free Options u This creates Market Inefficiencies u The airline shoulders the Price Risk n Block Space is Writing a Covered Call without any compensation, the worst of all worlds n This drives up Published Fares

Revenue Management Revisited n Revenue Management is an Inherently Speculative Strategy u Holding inventory is a Speculative Activity u Suppliers should Hedge against Price Risk to insure an acceptable profit n Market Conditions do not Always Warrant a Speculative Strategy u Flexibility of Strategies is Important to be able to Effectively Managing Risk

Financial Follies in Revenue Management n Revenue Management works well where Speculation works well u Great in High Demand / Business Markets where Prices can be Expected to Run Up u Poor Performance in Cost Conscious Markets n A Single Risk Management Mechanism Limits the Ability of Revenue Management u Need to Contrive Mechanism allowing Hedging

Full Metal Jacket Managing Negotiated Programs n Negotiated Programs Need a Hedging Strategy which Guards against Dilution n Charging an Option Premium per Booking Makes the Agreement Revenue Neutral n Writing a Covered Call is a Hedge u Price Goes Up, Dilution Offset by Premium u Price Does Down, Premium covers Lower Price n Better Yet, Buy Put to Insure Lowest Price

Pricing the Risk of Dilution n Goal: Achieve Financial Neutrality n Simplest Idea is use Black-Scholes OPM u Target Ticket Price = $300, Current = $200 u Volatility of Price = 5% u T-Bill Rate = 5% u Offer Expiration in 100 days n The Risk of Each Booking is worth $38.16 n The Premium = $ Handling Expense

The Killing Benefits to Airlines n Protecting against Dilution Stabilizes Expected Revenue n Hedge shifts Price Risk away from Airline n Risk Adverse rather than Risk Seeking u Better Corporate Financing Strategy n New Mechanism creates a Revenue Management Adaptive to Market Condition n Overbookings and DBs are History

Paths of Glory Applications to Cyberspace n Using the Option Premium allows Airlines to Cede Blocks of Bookings to Internet Auction Sites without Risk of Dilution n Internet Sites Partially Cover Premiums by Selling Airlines Puts and Information n Market Efficiency is Increased u Creating a Fairer Playing Field u Lowering Published Fares for Consumers