Task and Mark distribution: Scenario You are a commodity manager hedging British Airways' price exposure to jet fuel oil for the next 2 years. The company requires 100,000 gallons per month (1,200,000 gallons p.a.) of jet fuel oil. Time period is Jan 21-Dec21. Task/ Procedure In a report of no more than 1000 words, create a risk management strategy to explain how to minimise BA's price risk exposure. It is expected that you will explain your strategy, using your own data and your own research, your hedging strategy in order to minimise price risk. Your strategy can include the use of swaps, options futures complex hedging strategies and buying on the spot and also not hedging certain time periods at all. Append all your workings/ calculations to the report Your submission must Include the following as a minimum: An appropriate strategy Evaluate and discuss each contract used individually, over which time period? and the calculations? For example if you decide to hedge the full 100.000 gallon of Jan20 with an option at which strike price, what premium will you pay, what is the payoff for this and the benefits and drawbacks. Appraise the benefits and drawbacks of the strategy as a whole You may also construct scenario's to explain what will happen to my position if the market rises or falls. Construct numerical examples using your data. There after you can develop your own pricing provide it's realistic (HINT: premiums are higher in the money than out of the money] Critique your strategy by discussing why this strategy may not be effective and the risks associated Clearly conclude with a summary of the strategy and the salient points. - Use of appropriate graph, tables and appendix efficiently use the word count. Use of academic references to support your argument. Appendices Appendix A- Options Data Appendix C-Template example Nov 25 Dee 15 2020 Aug 503 47 45 1 Strike Price 2500 2525 2550 2575 2600 2625 35 4 Jan 2 3 3.5 Jul 39.4 369 34.4 319 29.4 269 24 219 19.4 16S 14 45 4.5 Mar wa Apr e-3.50% cross hedge against crude oil buy 25% on the spot 403 378 353 329 303 27.3 253 22.3 203 179 153 12.8 103 Jet Fuel Oil Option Premium JUC031 Dre2021 (c) paralla Calls Sepe Oct Nov Dec Jul Aug 434 33.5 33 45.5 0.8 40.9 36 30.5 43 1.4 38.4 33.5 28 40.5 1.7 31 35.9 1 255 31 1.1 38 1.8 28.5 23 35.5 12 30.9 26 20.5 33 1.3 2.8 18 30.5 1.4 5.3 25.9 21 21 15.5 28 1.5 23.4 13.5 13 25.5 1.6 10.3 20.9 16 10.5 23 1.9 184 13.5 8 20.5 4.4 15.3 15.9 11 6.5 16 17.5 . 8.5 15.5 94 20.3 109 6 18 13 11.9 22.5 8.4 3.5 5.5 10.5 144 25.3 --- 5.9 5.3 16.9 27.8 3.4 5. 194 30.3 3 S 5 21.9 32.8 1.8 4.8 4.5 35.3 25 1.7 4.5 4 26.9 37.8 1.6 4.3 3.5 29.4 40.3 1.5 4 31.9 42.5 1.5 1.4 3.5 2.5 34.4 45.3 1.3 1.3 3 36.9 47.8 1 1.2 1.5 50.3 5.2 53 55 Puts Sept Oct 121 13 1.3 15 15 1.6 1.7 1.8 2 3.4 2.5 3 84 3.5 109 6 13.4 8.5 159 11 18.4 13.5 20.9 16 23.4 185 25.9 21 28.4 23.5 30.9 26 33.4 28.5 359 31 38.4 33.5 40.9 36 434 38.5 May lun - Jul 119 Appendix B-Forward Curve Data Jet Fuel Heating Contract Forward Oil % Oil % (5 Gallon) (3.Gallen) Change Change Jan-20 3.059 3.091 3.09 Feb-20 3.166 3.218 3.99% 7050 Mar-20 3.003 2.969 -8.39% Apr 20 2.887 2.908 4.02% -5.79% 2.993 May 20 2.725 0.21% -3.05% wa Jun-20 2.901 2.769 0.25% 1.59% 402 13 3.02 Jul-20 2.891 3.94% 4.32% 3.075 3.003 Aug-20 1.79% 3.63% 102 Son 3.042 2.934 Sep-20 -1.08% -2.35% Oct-20 2.987 2.885 -1.84% -1709 No20 2.94 2.83 -1.609 % -1 99% Dec-20 3.021 2.955 SHADEM 8.01% 13.29% 2.86% ec. Swaps 259 Aug 2700 2725 2750 2775 2800 2625 2850 2875 2900 2925 2950 2975 3000 3005 3050 3015 3100 cg 10% option hedge 44 Sep Olet 5.5 8 10.5 13 15.5 18 20.5 23 2551 28 30.5 33 35.5 38 40.5 6 65 8 10.5 13 15.5 18 205 23 25.5 Nov 19 16 15 14 13 12 11 1 1 09 53 Dec - 18 17 1.4 30.5 33 Correlation Coffeet between HO & JO 95.70% 1 994 45.5 Task and Mark distribution: Scenario You are a commodity manager hedging British Airways' price exposure to jet fuel oil for the next 2 years. The company requires 100,000 gallons per month (1,200,000 gallons p.a.) of jet fuel oil. Time period is Jan 21-Dec21. Task/ Procedure In a report of no more than 1000 words, create a risk management strategy to explain how to minimise BA's price risk exposure. It is expected that you will explain your strategy, using your own data and your own research, your hedging strategy in order to minimise price risk. Your strategy can include the use of swaps, options futures complex hedging strategies and buying on the spot and also not hedging certain time periods at all. Append all your workings/ calculations to the report Your submission must Include the following as a minimum: An appropriate strategy Evaluate and discuss each contract used individually, over which time period? and the calculations? For example if you decide to hedge the full 100.000 gallon of Jan20 with an option at which strike price, what premium will you pay, what is the payoff for this and the benefits and drawbacks. Appraise the benefits and drawbacks of the strategy as a whole You may also construct scenario's to explain what will happen to my position if the market rises or falls. Construct numerical examples using your data. There after you can develop your own pricing provide it's realistic (HINT: premiums are higher in the money than out of the money] Critique your strategy by discussing why this strategy may not be effective and the risks associated Clearly conclude with a summary of the strategy and the salient points. - Use of appropriate graph, tables and appendix efficiently use the word count. Use of academic references to support your argument. Appendices Appendix A- Options Data Appendix C-Template example Nov 25 Dee 15 2020 Aug 503 47 45 1 Strike Price 2500 2525 2550 2575 2600 2625 35 4 Jan 2 3 3.5 Jul 39.4 369 34.4 319 29.4 269 24 219 19.4 16S 14 45 4.5 Mar wa Apr e-3.50% cross hedge against crude oil buy 25% on the spot 403 378 353 329 303 27.3 253 22.3 203 179 153 12.8 103 Jet Fuel Oil Option Premium JUC031 Dre2021 (c) paralla Calls Sepe Oct Nov Dec Jul Aug 434 33.5 33 45.5 0.8 40.9 36 30.5 43 1.4 38.4 33.5 28 40.5 1.7 31 35.9 1 255 31 1.1 38 1.8 28.5 23 35.5 12 30.9 26 20.5 33 1.3 2.8 18 30.5 1.4 5.3 25.9 21 21 15.5 28 1.5 23.4 13.5 13 25.5 1.6 10.3 20.9 16 10.5 23 1.9 184 13.5 8 20.5 4.4 15.3 15.9 11 6.5 16 17.5 . 8.5 15.5 94 20.3 109 6 18 13 11.9 22.5 8.4 3.5 5.5 10.5 144 25.3 --- 5.9 5.3 16.9 27.8 3.4 5. 194 30.3 3 S 5 21.9 32.8 1.8 4.8 4.5 35.3 25 1.7 4.5 4 26.9 37.8 1.6 4.3 3.5 29.4 40.3 1.5 4 31.9 42.5 1.5 1.4 3.5 2.5 34.4 45.3 1.3 1.3 3 36.9 47.8 1 1.2 1.5 50.3 5.2 53 55 Puts Sept Oct 121 13 1.3 15 15 1.6 1.7 1.8 2 3.4 2.5 3 84 3.5 109 6 13.4 8.5 159 11 18.4 13.5 20.9 16 23.4 185 25.9 21 28.4 23.5 30.9 26 33.4 28.5 359 31 38.4 33.5 40.9 36 434 38.5 May lun - Jul 119 Appendix B-Forward Curve Data Jet Fuel Heating Contract Forward Oil % Oil % (5 Gallon) (3.Gallen) Change Change Jan-20 3.059 3.091 3.09 Feb-20 3.166 3.218 3.99% 7050 Mar-20 3.003 2.969 -8.39% Apr 20 2.887 2.908 4.02% -5.79% 2.993 May 20 2.725 0.21% -3.05% wa Jun-20 2.901 2.769 0.25% 1.59% 402 13 3.02 Jul-20 2.891 3.94% 4.32% 3.075 3.003 Aug-20 1.79% 3.63% 102 Son 3.042 2.934 Sep-20 -1.08% -2.35% Oct-20 2.987 2.885 -1.84% -1709 No20 2.94 2.83 -1.609 % -1 99% Dec-20 3.021 2.955 SHADEM 8.01% 13.29% 2.86% ec. Swaps 259 Aug 2700 2725 2750 2775 2800 2625 2850 2875 2900 2925 2950 2975 3000 3005 3050 3015 3100 cg 10% option hedge 44 Sep Olet 5.5 8 10.5 13 15.5 18 20.5 23 2551 28 30.5 33 35.5 38 40.5 6 65 8 10.5 13 15.5 18 205 23 25.5 Nov 19 16 15 14 13 12 11 1 1 09 53 Dec - 18 17 1.4 30.5 33 Correlation Coffeet between HO & JO 95.70% 1 994 45.5