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Risk Management in the Crude Oil Market

Risk Management in the Crude Oil Market

          
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About the Book

This thesis aims to explore two main issues. First we study crude oil prices in view of weak-form efficiency. Thereupon we look into different hedging strategies that could be used to stabilize income in a market with high volatility. The data used are crude oil prices of West Texas Intermediate between 1987 and 2010. We conclude that the spot crude price and the 3 month future price for the same oil type are weak-form efficient. The two prices tend towards a long-run equilibrium and differences in prices are quickly adjusted. OPEC's role in the market is discussed as a weakness to price efficiency. Based on efficient prices, we find that the minimum variance hedging method gives the lowest risk, but a naive hedge ratio is easiest to implement in a business strategy for a risk averse management. On the other hand, a risk neutral oil company would get a higher added return by merely buy and sell in the spot market. By introducing a multiple risks hedging model consisting of price risk and exchange rate risk, we suggest that a Norwegian company could reduce its total risk of the portfolio by increasing its exposure in the currency market.


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Product Details
  • ISBN-13: 9783639309515
  • Publisher: VDM Verlag
  • Binding: Paperback
  • Language: English
  • Returnable: N
  • Spine Width: 5 mm
  • Width: 152 mm
  • ISBN-10: 3639309510
  • Publisher Date: 17 Nov 2010
  • Height: 229 mm
  • No of Pages: 76
  • Series Title: English
  • Weight: 127 gr


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