Working Papers

The WNE Working Papers series has been published by the Faculty of Economic Sciences at the University of Warsaw since 2008.

The WNE Working Papers series provides a fast, open channel for disseminating research conducted at the Faculty of Economic Sciences, University of Warsaw. The papers hosted here are working versions (pre-prints) and may evolve as authors refine their analyses, incorporate feedback, or progress through formal peer-review. What you read is the current version released by the authors, timestamped and assigned DOI/ISSN identifiers to ensure precise citation and version tracking. Copyright remains with the authors, who may, at any time, upload a revised file or add a note directing readers to a later, peer-reviewed publication.

The Working Papers series accepts articles by research employees of the Faculty and publications from conferences organised at the Faculty of Economic Sciences at the University of Warsaw. Articles should be original research papers which have not been previously published, on the subject of economics.

Please send your paper by e-mail: zJyK-V64@g=B1LmNih'$[Me^PG?]#[r6l3qEx!xXz1!ce9Oqxxd/JTY4' 

Please send 2 files:

(1) the main text without the title of the article and the authors (DOC/DOCX file) and

(2) the title page including: the title of the paper, the authors and their affiliation (DOC/DOCX file).

Please read the detailed editing requirements before submitting your text. 

Number of Results 2

WP(20/2026)514. Hedging Auction Volatility with Gap Call Options

Authors: Mbara Gilbert
We investigate the feasibility of hedging commodity price risk using gap call options within an auction-based market devoid of traditional derivatives. Using a novel, high-frequency dataset from the Nairobi Coffee Exchange (NCE), we model spot price …

WP514. Hedging Auction Volatility with Gap Call Options

We investigate the feasibility of hedging commodity price risk using gap call options within an auction-based market devoid of traditional derivatives. Using a novel, high-frequency dataset from the Nairobi Coffee Exchange (NCE), we model spot price dynamics by deriving a Geometric Brownian Motion process from the independent private values paradigm. The estimated model captures the unique microstructure of the NCE, where discrete weekly auctions generate prices characterized by extreme volatility (146.5% annualized). We utilize Monte Carlo simulation to price and evaluate the performance of gap call options for buyers seeking protection against catastrophic price spikes. Our results demonstrate that gap options – characterized by a trigger price higher than the strike – provide superior risk-adjusted returns compared to standard European calls. Our study offers a practical framework for developing tailored risk management instruments in emerging commodity exchanges, and provides empirical evidence for the viability of gap options as a cost-effective hedging tool in high-volatility, institutionally constrained markets.


DOI: https://doi.org/10.33138/2957-0506.2026.20.514
Mbara Gilbert
risk management hedging commodity price risk gap options Nairobi Coffee Exchange geometric Brownian motion Monte Carlo simulation

WP(19/2026)513. Price Discovery in Segmented Markets: Evidence from the Nairobi Coffee Exchange

Authors: Mbara Gilbert
We investigate the dynamics of price discovery between physical spot and financial futures markets for green coffee, a commodity uniquely characterized by the geographical and informational separation of its producers from global financial centers. U…

WP513. Price Discovery in Segmented Markets: Evidence from the Nairobi Coffee Exchange

We investigate the dynamics of price discovery between physical spot and financial futures markets for green coffee, a commodity uniquely characterized by the geographical and informational separation of its producers from global financial centers. Using dis-aggregated weekly prices from the Nairobi Coffee Exchange (NCE) auction and corresponding International Coffee Exchange (ICE) futures, we estimate a vector error correction model to quantify the transmission of information. Our findings reveal that price discovery predominantly occurs in the physical spot market, which accounts for approximately 83% and 88% of the information and component shares, respectively. These results challenge the conventional view that futures markets are the primary locus of price formation for homogeneous commodities and highlight the critical role of local supply-demand fundamentals in a major producing region. The analysis further uncovers heterogeneity in price discovery contributions across different coffee grades, providing novel insights into the micro-structure of agricultural commodity markets.


DOI: https://doi.org/10.33138/2957-0506.2026.19.513
Mbara Gilbert
price discovery information shares cointegration coffee futures Nairobi Coffee Exchange commodity markets
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