Question set 2: (650 words.)

The CFO appreciates a concrete hedging analysis to validate your advice in your answer to Question 1.

A dataset is collected from trading platforms and is provided for:

Spot market Jet Fuel,

HO1 Commodity (Future), and

CO1 Commodity (Future).

See the data file in Excel. The file contains a description of the data series as if you are accessing the market yourself.

Here are some points about the datafile, please use the updated file which is online so that you do not need to match dates. I set this already for you:

PX_LAST is the last traded price for the week

PX_VOLUME is the traded volume

OPEN_INT is the open interest.

2 a- Estimate and interpret the minimum variance hedge ratio for each of the future commodity. Use the OLS method and comment on the significance of the results. (Support files for using regressions in OLS are provided). Use the full sample in your estimation.

2 b- Discuss whether differences in the hedge ratio between the two commodities will have any effect on the effectiveness of the hedge.

2 c- Recommend a convenient hedging strategy to the CFO using the data provided and explain the corresponding hedging position.

2 d- What are the potential factors that may weaken your suggested strategy. Discuss

(Calculations do not count as words)

Design Format Search Share Comments Home insen Page Layout Formulas Data Review View 1 Queries & Connections Properties Gut From From From To Recent Existing Refresh Data Text/CSV Web Range Sources Connections Aldi Lin Gel & Translam Dala Queries & Connection Data Analysis 2. Soy Hide Detail Stocks Geography Z Sol FLERupply Advanced Sort & Filter E xt to Flam Ramon Dale Codate Butcomhip Manage Columns Duplicates Validation Data Model Data Tools Group Ungroup Subtotal W Fort Analysis Sheet Foto Duta Types Line Analyes Chart H 1 M N 0 P R S UV w - X Y 2 AA AB AC AD AE SUMMARY OUTPUT O X Variable 1 Line Fit Plot Regression Statistics Multiple 0.875545 R Square 0.76658 Adjusted 0.70537 Standard 3.669076 195 Obronat ANOVA 30 dr SS MS F gnificancel 1 8532.758 8532.758 033.6145 0.93E-63 199 2598.189 13.45212 194 11130.95 Regressio Residual Total 20 Y Predsedy Coefficientandard Em stor P-value Lower 959Upper 95ower 95.0 per 95.0% Intercept -0.00996 0.2533R5 -0.11376 0.909549 -0.54944 0.489521 -0.54994 0.409521 X Variablc 1.068766 0.042452 25.17607 6.93E G3 0.985038 1.152495 0.955038 1.152495 -20 -15 -10 D F G 1 CUI Change in spot change in Hol Change in co1 2 3 33.58 -9.80 -4,85 -3.73 28.91 -11.78 - 11.28 -4.61 3 32.18 5.17 6.14 3.24 34.74 11 15 5.94 2.56 30.06 0.51 0.39 -(1.68 33.36 153 1.03 -0.7 o 33.01 -5.38 -4.BR -0.35 10 35.1 0.69 2.57 2.09 11 38.72 9:51 11.01 3.62 12 40.39 4.92 5.67 1.07 13 412 1.30 2.11 0.81 14 844 40.44 -3.63 -4.12 -0.76 15 3R.57 -R.12 -6.62 -1.77 16 41.94 7.87 0.87 3.27 17 1.56 3.18 1.16 18 45.11 5.34 7.67 2.01 19 48.13 8.84 6.9 3.02 20 45.37 4.05 -2.75 21 47.33 6.58 6.55 246 22 48.72 9.64 8.69 0.89 49.32 0.78 0.6 49.64 -1.47 -0.59 0.32 25 50.54 2.67 2.79 09 49.17 -2.81 1.37 27 48.41 -2.39 -2.64 -0.76 28 50.35 5.02 1.94 46.76 -11.3 47.61 -2.11 0.85 31 45.09 -3.67 4.04 -1.92 4246 -9.35 33 44.27 1.81 45.97 10.33 9.15 2.7 35 50.88 13.73 11.1 3.91 36 49.92 -1.24 -2.244 37 45.83 10.14 8.75 3.09 48.00 1.18 ETINYPR Index HOT Comity C01 Comdty Ready Sredicted Y Point 3.18 (3.18 3.36675205 25 and general print RESIDUAL OUTPUT + X Variable 1 Observationedicted YResiduals 1 5.22417 4.63583 2 -12.62 0.81003 3 6.532264 -1.36226 4 0.318511 4.831439 5 0.586657 0.143143 6 1.070868 0.459132 74.71116 0.60854 8 2.716768 -2.02677 9 11.73716 -2.22716 10 6.029944 1.10994 11 2.225135 -0.36514 12 4.43328 0.812279 13 7.1052 1.0148 14 7.372453 0.55537 Sheet1 + Displaying 100% Design Format Search Share Comments Home insen Page Layout Formulas Data Review View 1 Queries & Connections Properties Gut From From From To Recent Existing Refresh Data Text/CSV Web Range Sources Connections Aldi Lin Gel & Translam Dala Queries & Connection Data Analysis 2. Soy Hide Detail Stocks Geography Z Sol FLERupply Advanced Sort & Filter E xt to Flam Ramon Dale Codate Butcomhip Manage Columns Duplicates Validation Data Model Data Tools Group Ungroup Subtotal W Fort Analysis Sheet Foto Duta Types Line Analyes Chart H 1 M N 0 P R S UV w - X Y 2 AA AB AC AD AE SUMMARY OUTPUT O X Variable 1 Line Fit Plot Regression Statistics Multiple 0.875545 R Square 0.76658 Adjusted 0.70537 Standard 3.669076 195 Obronat ANOVA 30 dr SS MS F gnificancel 1 8532.758 8532.758 033.6145 0.93E-63 199 2598.189 13.45212 194 11130.95 Regressio Residual Total 20 Y Predsedy Coefficientandard Em stor P-value Lower 959Upper 95ower 95.0 per 95.0% Intercept -0.00996 0.2533R5 -0.11376 0.909549 -0.54944 0.489521 -0.54994 0.409521 X Variablc 1.068766 0.042452 25.17607 6.93E G3 0.985038 1.152495 0.955038 1.152495 -20 -15 -10 D F G 1 CUI Change in spot change in Hol Change in co1 2 3 33.58 -9.80 -4,85 -3.73 28.91 -11.78 - 11.28 -4.61 3 32.18 5.17 6.14 3.24 34.74 11 15 5.94 2.56 30.06 0.51 0.39 -(1.68 33.36 153 1.03 -0.7 o 33.01 -5.38 -4.BR -0.35 10 35.1 0.69 2.57 2.09 11 38.72 9:51 11.01 3.62 12 40.39 4.92 5.67 1.07 13 412 1.30 2.11 0.81 14 844 40.44 -3.63 -4.12 -0.76 15 3R.57 -R.12 -6.62 -1.77 16 41.94 7.87 0.87 3.27 17 1.56 3.18 1.16 18 45.11 5.34 7.67 2.01 19 48.13 8.84 6.9 3.02 20 45.37 4.05 -2.75 21 47.33 6.58 6.55 246 22 48.72 9.64 8.69 0.89 49.32 0.78 0.6 49.64 -1.47 -0.59 0.32 25 50.54 2.67 2.79 09 49.17 -2.81 1.37 27 48.41 -2.39 -2.64 -0.76 28 50.35 5.02 1.94 46.76 -11.3 47.61 -2.11 0.85 31 45.09 -3.67 4.04 -1.92 4246 -9.35 33 44.27 1.81 45.97 10.33 9.15 2.7 35 50.88 13.73 11.1 3.91 36 49.92 -1.24 -2.244 37 45.83 10.14 8.75 3.09 48.00 1.18 ETINYPR Index HOT Comity C01 Comdty Ready Sredicted Y Point 3.18 (3.18 3.36675205 25 and general print RESIDUAL OUTPUT + X Variable 1 Observationedicted YResiduals 1 5.22417 4.63583 2 -12.62 0.81003 3 6.532264 -1.36226 4 0.318511 4.831439 5 0.586657 0.143143 6 1.070868 0.459132 74.71116 0.60854 8 2.716768 -2.02677 9 11.73716 -2.22716 10 6.029944 1.10994 11 2.225135 -0.36514 12 4.43328 0.812279 13 7.1052 1.0148 14 7.372453 0.55537 Sheet1 + Displaying 100%