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Mean-variance hedging with oil futures


  • Liao Wang


  • Johannes Wissel



We analyze mean-variance-optimal dynamic hedging strategies in oil futures for 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. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Liao Wang & Johannes Wissel, 2013. "Mean-variance hedging with oil futures," Finance and Stochastics, Springer, vol. 17(4), pages 641-683, October.
  • Handle: RePEc:spr:finsto:v:17:y:2013:i:4:p:641-683
    DOI: 10.1007/s00780-013-0203-x

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    References listed on IDEAS

    1. Alev{s} v{C}ern'y & Jan Kallsen, 2007. "On the Structure of General Mean-Variance Hedging Strategies," Papers 0708.1715,, revised Jul 2017.
    2. Ales Černý & Jan Kallsen, 2008. "Mean-Variance Hedging And Optimal Investment In Heston'S Model With Correlation," Mathematical Finance, Wiley Blackwell, vol. 18(3), pages 473-492.
    3. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
    4. Christian Gourieroux & Jean Paul Laurent & Huyên Pham, 1998. "Mean-Variance Hedging and Numéraire," Mathematical Finance, Wiley Blackwell, vol. 8(3), pages 179-200.
    5. Chen, Sheng-Syan & Lee, Cheng-few & Shrestha, Keshab, 2003. "Futures hedge ratios: a review," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 433-465.
    6. Lien, Donald & Tse, Y K, 2002. " Some Recent Developments in Futures Hedging," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 357-396, July.
    7. Eckhard Platen, 2005. "On The Role Of The Growth Optimal Portfolio In Finance," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 365-388, December.
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    More about this item


    Mean-variance hedging; Fuel hedging; Energy futures market; 60H30; 91B30; 91G20; 91G80; C61; G11; G13;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


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