Since the crisis of the Metallgesellschaft AG in 1993, their roll over hedging strategy with short-term oil futures has been a subject of controversal debate. Main issues of this controversy are whether a woll over hedge is at all appropriate and what hedge-ratios should be used. In contrast to most previous papers we derive risk minimal hedge strategies based on theoretical pricing models. These models contain either the spot price of oil or both the spot price and the conviniency yield as stochastic factors. In the empirical part of the paper we develop a data based simulation model, which is used to generate realistic paths of spot and futures prices. Based on these prices, we compare the different strategies in respect to their ability to reduce risk. Finally, the sensitivity of hedging results to changes in the hedge ratio parameters, the data window, the mean reversion of spot prices and the hedge horizon are examined.The results lead to a recommendation of one of the strategies.

Bühler, W. and O. Korn (1998), Hedging Langfristiger Lieferverpflichtungen mit kurzfristigen Futures : Möglich oder Unmöglich ?, ZEW Discussion Paper No. 98-20, Mannheim. Download


Bühler, W.
Korn, O.