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Portfolio risk reduction in oil pricing: the case for SDRs

Author

Listed:
  • Musa Essayyad
  • Ibrahim Algahtani

Abstract

Recognising the superior benefits of risk reduction associated with using portfolio of currencies relative to a single currency (US dollar), this paper shows that, ceteris paribus, a minimum-variance portfolio of currencies in the developed world has weights that strikingly mimic those currencies making up the SDRs. This means that discounting the benefits of using the US dollar derived mainly from prevailing geopolitics and oil trade infrastructure, SDRs basket would be the viable alternative to use in oil pricing in terms of its superior risk reduction benefits.

Suggested Citation

  • Musa Essayyad & Ibrahim Algahtani, 2007. "Portfolio risk reduction in oil pricing: the case for SDRs," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 27(4), pages 395-403.
    • Handle: RePEc:ids:ijgeni:v:27:y:2007:i:4:p:395-403
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