Answer as thourough as possible. Consider an airline whose bottom line is sensitive to volatile jet fuel
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Answer as thourough as possible.
Consider an airline whose bottom line is sensitive to volatile jet fuel prices. To reduce the volatility, management decides to use derivatives to hedge the cost of jet fuel. The risk management team proposed three choices:
(1) options;
(2) futures/forwards;
(3) swaps.
Discuss each choice in detail and list the strength and weakness of each choice.
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