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Pricing and hedging of oil futures: A unifying approach

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  • Bühler, Wolfgang
  • Korn, Olaf
  • Schöbel, Rainer

Abstract

We develop and empirically test a continuous time equilibrium model for the pricing of oil futures. The model provides a link between no-arbitrage models and expectation oriented models. It highlights the role of sufficient inventories for oil futures pricing and for the explanation of backwardation and contango situations. In an empirical study the hedging performance of our model is compared with five other one- and two-factor pricing models. The hedging problem considered is related to Metallgesellschaft's strategy to hedge long-term forward commitments with short-term futures. The results show that the downside risk distribution of our inventory based model stochastically dominates those of the other models.

Suggested Citation

  • Bühler, Wolfgang & Korn, Olaf & Schöbel, Rainer, 2000. "Pricing and hedging of oil futures: A unifying approach," Tübinger Diskussionsbeiträge 190, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:190
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    Cited by:

    1. Manfred Stadler & Rüdiger Wapler, 2004. "Endogenous Skilled-biased Technological Change and Matching Unemployment," Journal of Economics, Springer, vol. 81(1), pages 1-24, January.
    2. Stadler, Manfred, 2003. "Innovation and growth: The role of labor-force qualification," Tübinger Diskussionsbeiträge 255, University of Tübingen, School of Business and Economics.

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    Keywords

    oil futures;

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