Hedging long-dated oil futures and options using short-dated securities: Revisiting Metallgesellschaft

Artikel

Since the collapse of the Metallgesellschaft AG due to hedging losses in 1993, energy practitioners have been concerned with the ability to hedge long-dated linear and non-linear oil liabilities with short-dated futures and options. This paper identifies a model-free non-parametric approach to extrapolating futures prices and implied volatilities. When we expand the analysis to implementing hedge portfolios for long-dated futures or option contracts over the time period 2007-2017, we utilize the useful benchmark of hedge ratios arising from Schwartz and Smith. With respect to the empirical consequences of hedging long-dated futures and options with their short-dated counterparts, we find that the long-term tracking errors are, on average, quite close to zero, but there is increasing risk entailed in attempting to do so, as the hedge-tracking errors for both futures and option contracts increase with time-to-maturity.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 14 ; Year: 2021 ; Issue: 8 ; Pages: 1-10 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Contingent Pricing; Futures Pricing; option pricing
• Subject: hedging ; long-dated ; oil futures ; option contracts

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Doran, James S. ; Ronn, Ehud I.
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2021

Further information

• DOI: doi:10.3390/jrfm14080379
• Handle: http://hdl.handle.net/10419/258483
• Last update: 10.03.2025, 11:41 AM CET