An airline expects to purchase 2 million gallons of jet fuel in one month and decides...
An airline expects to purchase 2 million gallons of jet fuel in one month and decides to use heating oil futures for hedging. Each heating fuel futures contract size = 42,000 gallons. With some historical data, we find the following statistics: ρ= 0.9, σS = 0.03, σF = 0.04 #1) What is the optimal hedge ratio that should be used? #2) What is the optimal hedging strategy for this airline company?
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An airline expects to purchase 2 million gallons of jet fuel in
one month and decides...
An airline expects to purchase 2 million gallons of jet fuel in 1 month and decides...
An airline expects to purchase 2 million gallons of jet fuel in 1 month and decides to use heating oil futures for hedging. The standard deviation of the change in the jet fuel price per gallon. The standard deviation of the change in the futures price of heating oil per gallon. Their correlation coefficient. Each heating oil contract traded by the CME Group is on 42,000 gallons of heating oil. How many contracts should the company buy or sell? Round...
During March 2020, an airline buys 42 million gallons of jet fuel in the Gulf Coast...
During March 2020, an airline buys 42 million gallons of jet fuel in the Gulf Coast to fuel its planes at a weighted average price of $1.75 per gallon. In mid-December of 2019, the airline bought 920 April 2020 crude oil futures contracts at the prevailing futures price of $63.00 per barrel (NOTE: each futures contract has an underlying of 1,000 barrels of crude oil). On the same date that the futures contracts are purchased, the VP observes that the...
Financial derivatives
On January, an airline company, selling tickets well in advance, wants to hedge against the riskassociated with jet fuel price fluctuations. In the absence of Futures contracts traded on jet fuel,they choose to use NYMEX Futures contracts on heating fuel oil. The futures prices of heatingfuel oil is $3.28 per gallon.Suppose the standard deviation of monthly changes in the price of jet fuel is $0.035, the standarddeviation of monthly changes in the Futures price of heating fuel oil is $0.040...
During March 2020, an airline buys 42 million gallons of jet fuel in the Gulf Coast to fuel its planes at a weighted average price of $1.75 per gallon. In mid-December of 2019, the airline bought 920 April 2020 crude oil futures contracts at the prevailing futures price of $63.00 per barrel (NOTE: each futures contract has an underlying of 1,000 barrels of crude oil). On the same date that the futures contracts are purchased, the VP observes that the...
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