Hedging Long-Dated Oil Futures and Options Using Short-Dated Securities — Revisiting Metallgesellschaft

18 Pages Posted: 15 Mar 2021

See all articles by James Doran

James Doran

University of New South Wales

Ehud I. Ronn

University of Texas at Austin - Department of Finance

Date Written: January 25, 2021

Abstract

Since the collapse of the Metallgesellschaft AG due to hedging losses in 1993, energy practitioners have been concerned with the ability to hedge long-dated linear and non-linear oil liabilities with short-dated futures and options. This paper identifies a model-free non-parametric approach to extrapolating futures prices and implied volatilities. When we expand the analysis to implementing hedge portfolios for long-dated futures or option contracts, we utilize the useful benchmark of hedge ratios arising from Schwartz and Smith (2000).

Keywords: Hedging Long-Dated Oil Futures and Option Contracts

JEL Classification: G12, G13

Suggested Citation

Doran, James and Ronn, Ehud I., Hedging Long-Dated Oil Futures and Options Using Short-Dated Securities — Revisiting Metallgesellschaft (January 25, 2021). Available at SSRN: https://ssrn.com/abstract=3773257 or http://dx.doi.org/10.2139/ssrn.3773257

James Doran

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Ehud I. Ronn (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Graduate School of Business
Austin, TX 78712
United States
512-471-5853 (Phone)
512-471-5073 (Fax)

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