Question
On February 26th, the CFO of an airline company wants to hedge its exposure on Jet Fuel Kerosene for the next 5 months. He is
On February 26th, the CFO of an airline company wants to hedge its exposure on Jet Fuel Kerosene for the next 5 months. He is bundling up his risk into a July 2021 55,000 bbl. exposure. He selected two possible hedging futures and these are June and September futures on Crude Oil with a physical delivery in Cushing, Oklahoma.
What futures should he be doing and what should be his position (long or short?)
Is this hedge perfect? If not, what risk(s) is(are) involved in this hedge?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine the appropriate futures and position for the hedge we need to consider the correlation between Jet Fuel Kerosene and Crude Oil as well as ...
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Step: 2
Step: 3
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
