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Mean-variance hedging with oil futures

  • Liao Wang

    ()

  • Johannes Wissel

    ()

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    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

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    File URL: http://hdl.handle.net/10.1007/s00780-013-0203-x
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    Article provided by Springer in its journal Finance and Stochastics.

    Volume (Year): 17 (2013)
    Issue (Month): 4 (October)
    Pages: 641-683

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    Handle: RePEc:spr:finsto:v:17:y:2013:i:4:p:641-683
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    1. Eckhard Platen, 2005. "On the Role of the Growth Optimal Portfolio in Finance," Research Paper Series 144, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Ales Čern� & 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. Lien, Donald & Tse, Y K, 2002. " Some Recent Developments in Futures Hedging," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 357-96, July.
    4. 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.
    5. 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.
    6. Gourieroux, Christian & Laurent, Jean-Paul & Pham, Huyên, 1996. "Mean-variance hedging and numeraire," CEPREMAP Working Papers (Couverture Orange) 9611, CEPREMAP.
    7. Ale\v{s} \v{C}ern\'y & Jan Kallsen, 2007. "On the structure of general mean-variance hedging strategies," Papers 0708.1715, arXiv.org.
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