Mean-variance hedging with oil futures
Author
Wang, Liao
Wissel, Johannes
Abstract
We analyze mean-variance-optimal dynamic hedging strategies in oil producers and consumers. In a model for the oil spot and futures market with Gaussian convenience yield curves and a stochastic market price of risk, we find analytical solutions for the optimal trading strategies. An implementation of our strategies in an out-of-sample test on market data shows that the hedging strategies improve long-term return risk profiles of both the producer and the consumer.
Date Issued
2011-08-29
Keywords
Type
technical report