Pricing and Hedging Oil Futures: A Two-Regime Approach

49 Pages Posted: 14 Nov 2000

See all articles by Wolfgang Bühler

Wolfgang Bühler

University of Mannheim - Department of Business Administration and Finance; University of New South Wales, Australian Business School; Financial Research Network (FIRN)

Olaf Korn

Georg-August-Universität Göttingen

Rainer Schoebel

University of Tuebingen - Faculty of Economics and Social Sciences

Date Written: November 2001

Abstract

We develop and empirically test a continuous-time equilibrium model for the pricing of oil futures. Our model provides a link between no-arbitrage and expectations-oriented models, and highlights the role of inventories in identifying different pricing regimes. We compare the hedging performance of our model with five other one- and two-factor pricing models. Our hedging problem relates to Metallgesellschaft's strategy to hedge long-term forward commitments with short-term futures. In the base case, the downside risk distribution of our inventory-based model stochastically dominates those of the other models. We test the stability of our results by varying the empirical design.

Note: Formerly titled "Pricing and Hedging of Oil Futures - A Unifying Approach"

JEL Classification: G13, Q40

Suggested Citation

Bühler, Wolfgang and Korn, Olaf and Schoebel, Rainer, Pricing and Hedging Oil Futures: A Two-Regime Approach (November 2001). EFA 0415. Available at SSRN: https://ssrn.com/abstract=245408 or http://dx.doi.org/10.2139/ssrn.245408

Wolfgang Bühler

University of Mannheim - Department of Business Administration and Finance ( email )

D-68131 Mannheim
Germany
+49620368609 (Phone)
+49 6203660729 (Fax)

University of New South Wales, Australian Business School ( email )

Australian Business School
Sydney
Australia
+61-2-9385-54900 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Olaf Korn (Contact Author)

Georg-August-Universität Göttingen ( email )

Platz der Göttinger Sieben 3
D-37073 Göttingen
Germany

Rainer Schoebel

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
D-72074 Tuebingen
Germany
+49 7071 2977088 (Phone)

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