IDEAS home Printed from https://ideas.repec.org/h/spr/lnechp/978-3-319-20430-7_1.html
   My bibliography  Save this book chapter

Evaluating Price Risk Mitigation Strategies for an Oil and Gas Company

In: Computational Management Science

Author

Listed:
  • António Quintino

    (Universidade de Lisboa)

  • João Carlos Lourenço

    (Universidade de Lisboa)

  • Margarida Catalão-Lopes

    (Universidade de Lisboa)

Abstract

Financial hedging strategies are one of the preferred practices to protect oil and gas companies from prices’ volatility. The common approach consists in each business unit (e.g. crude exploration, natural gas, and refining) protecting itself against its own price risks. According to the “theory of syndicates” risk aggregation, and assuming that the risk tolerance assessment process is applied to every business unit, it is not clear whether separate hedging portfolio selections achieve a better risk protection than selection at company level. In this paper Copula-GARCH models are used to capture prices’ correlation and volatility, while business unit earnings are generated through Monte Carlo simulation. Optimal hedging portfolios are achieved with stochastic optimization over utility functions. We confront the business units’ portfolios through coherent risk measures against a portfolio for the whole company, which reveals to be the best option.

Suggested Citation

  • António Quintino & João Carlos Lourenço & Margarida Catalão-Lopes, 2016. "Evaluating Price Risk Mitigation Strategies for an Oil and Gas Company," Lecture Notes in Economics and Mathematical Systems, in: Raquel J. Fonseca & Gerhard-Wilhelm Weber & João Telhada (ed.), Computational Management Science, edition 1, pages 3-8, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-20430-7_1
    DOI: 10.1007/978-3-319-20430-7_1
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    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:spr:lnechp:978-3-319-20430-7_1. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.