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Mitigating Vulnerability to Oil Price Risk— Applicability of Risk Models to Pakistan’s Energy Problem

Author

Listed:
  • Jamshed Y. Uppal

    (Cathoic University of America, Washington, DC, USA)

  • Syeda Rabab Mudakkar

    (Lahore School of Economics, Lahore.)

Abstract

The paper examines the prospects of reducing the price risk of Pakistan’s oil imports through hedging in the oil futures market. The paper evaluates the ex-ante cross hedge strategies over the 1990–2013 period using 1–4 months futures NYMEX in order to see how to reduce price risk? Our results indicate that in all cases except one, ex-ante hedging would have been effective in reducing price risk. We provide quantitative estimates of the return/risk tradeoffs from hedging Pakistan’s oil imports, and find that futures hedging offers the country significant risk-reduction potential.

Suggested Citation

  • Jamshed Y. Uppal & Syeda Rabab Mudakkar, 2014. "Mitigating Vulnerability to Oil Price Risk— Applicability of Risk Models to Pakistan’s Energy Problem," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(3), pages 293-308.
    • Handle: RePEc:pid:journl:v:53:y:2014:i:3:p:293-308
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk-return Trade-off; Hedging; Oil Prices;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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