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ASSet_MANagemen

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tT
发表于 2011-7-11 19:30 | 只看该作者

Commodity Quiz

forward, storage, about, costs
1) Tell me the slope of the forward curve if storage costs are greater than the risk free rate.
2) How would I go about working out how to hedge jet fuel with crude oil futures.
3) Max[0, Average Daily Temp - 65F] - am I hedging with heating or cooling days?
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Darien

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发表于 2011-7-11 19:30 | 只看该作者
1) Upward sloping curve since you need to compensate for storage costs
2) Buy futures and go long, but determine how many according to the crack spread for your specific fuel? Not too sure what the question is asking.
3) You are hedging for heating days because your business probably benefits from cool days... you probably are a snowblowing company or something.

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ohai

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3#
发表于 2011-7-11 19:30 | 只看该作者
Question 3 wording is off which is why I wrote my answer the way I did.

Are you asking what we are hedging with or what we are hedging against?

NO EXCUSES

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cityboy

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发表于 2011-7-11 19:30 | 只看该作者
1. Upward sloping.

2. poorly is the answer. need to know the crack spread as in how many units of crude used to produce how many units of jet fuel and anything else and buy futures accordingly with massive basis risk.

3. The hotter the day the more the pay off. This is a call on temp with 65 strike. you are hedged against cold days

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dyga

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5#
发表于 2011-7-11 19:30 | 只看该作者
excatly bulldawg i was thinking the same, i would say ur hedged against hot days

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liangfeng

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6#
发表于 2011-7-11 19:30 | 只看该作者
Against, sorry - hot days

Answers:

1) Upward sloping
2) Regression of jet fuel returns on crude oil returns - use the slope coefficient as the hedge ratio.
3) Hedging against hot days. That is get paid if it's hot.

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Valores

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7#
发表于 2011-7-11 19:30 | 只看该作者
soddy1979 Wrote:
-------------------------------------------------------
> Against, sorry - hot days
>
> Answers:
>
> 1) Upward sloping
> 2) Regression of jet fuel returns on crude oil
> returns - use the slope coefficient as the hedge
> ratio.
> 3) Hedging against hot days. That is get paid if
> it's hot.

NM already explained. This is also an errata in Schweser if memory serves me right.



Edited 2 time(s). Last edit at Friday, May 20, 2011 at 02:42PM by Paraguay.

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