Arkady Gevorkyan

Derivatives, Commodities, and Social Costs: Exploring Correlation in Economic Uncertainty

Derivatives market has been epitomized with gross evil in the wake of the global economic crisis that ensued in 2008. This study argues for more extensive understanding of the phenomena as dynamics previously viewed unrelated now exhibit correlation. As empirical reference, this research relies on recent trends in the commodity futures contracts with analytical relation to the currency exchange rate and by extension the financial and real sectors. With varying intensity often speculative sporadic trading in crude oil, coffee, wheat, rice, sugar, and gold benchmark futures may inflict detrimental effects on the global development efforts. The issue is most acute in the emerging markets facing inflation fears, speculative movements of foreign currency-denominated funds, and underlying domestic currency value. This dynamic reasserts the concept of fundamental uncertainty allowing us to connect the typical risk-return stand with a dialectical unity of the financial, real sector, and social costs. Ultimately, issues raised in this study relate to the problems of social stability and sustained economic development in the postcrisis environment given high frequency and volatility of capital flows. As such, this chapter contributes to the literature that bridges financial empirical analysis with modern socially responsible economic development.

Renewable versus Nonrenewable Resources: An Analysis of Volatility in Futures Prices

This study outlines a new approach for differentiating commodity futures based on their exhaustibility. Various aspects of volatility in the futures prices of renewable resources (palm oil, coffee, soya beans, rice, wheat and corn) and nonrenewable resources (zinc, aluminium, natural gas, gold, crude oil and copper) are studied, exploring whether volatility is greater in the former than in the latter. We use a generalised autoregressive conditional heteroskedasticity (GARCH) model to test our main hypothesis that the volatility in futures prices for renewable resources has recently been equal to or greater than the volatility in futures prices for nonrenewable resources. Our key findings suggest that futures prices for some renewable resources have greater variance than those for benchmark crude oil in a simulated GARCH series. We extend our analysis using a nonlinear vector smooth transition autoregressive (VSTAR) model to test for the existence of a shifting-mean tendency in the commodity series that we researched. We show that transition from a stable to a volatile regime is more abrupt for renewable resources.

Modeling Climate Change Effects on Renewable and Non-Renewable Resources

This paper models climate change effects differentiating across primary commodities based on their exhaustibility factor. There is a direct pass-through to futures prices, but the impact differs across diverse commodity groups. This paper develops a theoretical model simulating dynamic consumption paths of renewable and non-renewable resources. Dynamic paths are calculated applying the Non-linear Model Predictive Control (NMPC) methodology. Current analysis draws a clear connection between intensifying impacts of climate change, commodity futures price volatility, rising urban-dependency pressures and the renewable and non-renewable resources production and consumption balance among advanced and emerging economies. Accumulated evidence suggests probable higher volatility in commodity prices in the near term, directly affecting small and large economies across all regions.