IDEAS home Printed from https://ideas.repec.org/a/ids/ijisen/v33y2019i4p450-472.html
   My bibliography  Save this article

Risk control with options hedging for an oil import enterprise

Author

Listed:
  • Xing Yu
  • Dongwei Shi

Abstract

The paper examines the performance of several options hedging models, namely with currency options, with crude oil options and with both currency and crude oil options, for a crude oil importing firm. We simulate the returns, calculate optimal hedge ratios and suggest a risk management strategy. The empirical results show that the models of GJR-t and EGARCH-t are respectively suitable to forecast the volatilities for WTI crude oil price and exchange rates (CNY/USD). Student-t Copula is the best fitting function to describe the dependence structure among the bivariate return series. Furthermore, by comparing the risks measured by conditional value at risk (CVaR), we suggest that the risk appetite investors can buy currency options for hedging and the risk aversion investors can buy crude oil options for hedging. It is not wise to buy both options of currency and crude oil in terms of budget.

Suggested Citation

  • Xing Yu & Dongwei Shi, 2019. "Risk control with options hedging for an oil import enterprise," International Journal of Industrial and Systems Engineering, Inderscience Enterprises Ltd, vol. 33(4), pages 450-472.
    • Handle: RePEc:ids:ijisen:v:33:y:2019:i:4:p:450-472
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=104274
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijisen:v:33:y:2019:i:4:p:450-472. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=188 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.