22.9. Assume that EXCO has an obligation to deliver 1.5 million barrels of oil in nine months at a fixed price of $24 per barrel. Assume a constant convenience yield of 2 percent per year and a riskfree rate of 9 percent per annum compounded annually.

a. How can EXCO hedge all the risk of this obligation in the forward market, using only forwards maturing three months from now and then rolling over new 3-month forwards?

b. How can EXCO hedge all the risk of this obligation, using only 3-month futures?

c. Repeat parts a and

b, assuming EXCO owns 1.5 million barrels of oil.