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Title: Structuring Exotic Options Contracts on Water to Improve the Efficiency of Resource Allocation in the Water Spot Market
Contributor(s): Williamson, Brendon (author); Villano, Renato (author); Fleming, Euan (author)
Publication Date: 2008
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Abstract: With the current drought in South-Eastern Australia highlighting the scarcity and value of inland Australia's water resources, focus turns to how these resources can be allocated more efficiently. The first major step was taken almost a decade ago with the separation of land and water property rights allowing openly traded water markets. This study assesses the potential economic benefits that options contracts bring to the water market in the Murray Valley water market. Exotic call options are estimated using both Black-Scholes and skewness-and-kurtosis-amended Black-Scholes financial option pricing methods that are based on three years of data on water prices. While the presence of options would result in significant economic benefits in the more efficient trade of water on the open market for lower-value crops, there were mixed results from the attempt to price such options.
Publication Type: Conference Publication
Conference Name: AARES 2008: 52nd Annual Conference of the Australian Agricultural and Resource Economics Society, Canberra, Australia, 5th - 8th February, 2008
Source of Publication: Proceedings of the 52nd Annual Conference of the Australian Agricultural and Resource Economics Society
Publisher: AARES: Australian Agricultural and Resource Economics Society
Place of Publication: Online
Field of Research (FOR): 140201 Agricultural Economics
150201 Finance
HERDC Category Description: E2 Non-Refereed Scholarly Conference Publication
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