Linear hedging of crude oil and natural gas
| Authors | |
|---|---|
| Year of publication | 2018 |
| Type | Article in Proceedings |
| Conference | International Journal of Trade and Global Markets |
| MU Faculty or unit | |
| Citation | |
| Web | http://dx.doi.org/10.1504/IJTGM.2018.097279 |
| Doi | http://dx.doi.org/10.1504/IJTGM.2018.097279 |
| Keywords | Hedging; Futures; Naive Portfolio; Minimum variance; Hedge ratio; Hedging effectiveness |
| Description | The paper examines price risk hedging for the key energy sources. The subjects of research are the spot prices of West Texas Intermediate and the Henry Hub. The risk protection is provided by the application of futures contracts. The hedge ratio is determined by using OLS, Naive portfolio, Copula and GARCH. Afterwards the ability of the received weights to reduce risk of is measured by hedging effectiveness over two years. The results confirmed that the applied model for crude oil is rather irrelevant in comparison to the natural gas where the employed models provide significant differences in hedging effectiveness. Overall, in the case of natural gas all the applied models were unable to generate satisfactory hedging results. |
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