Commodity market flexibility and financial derivatives

摘要

This paper discusses the link between commodity market flexibility and financial derivatives. Real flexibility affects financial assets, directly, via the representative agent's ability to use real flexibility as substitute to holding financial options and, indirectly, via the aggregate effect of real flexibility on the dynamics of underlying commodity prices. Real flexibility is modelled as instantaneous adjustment of production in response to demand-driven changes in commodity prices and by gradual entry or exit of production units. Increased real flexibility typically reduces the market price of financial flexibility. The paper includes a short empirical section on oil and gas markets.