Hedging Long-Dated Oil Futures and Options Using Short-Dated Securities — Revisiting Metallgesellschaft
18 Pages Posted: 15 Mar 2021
Date Written: January 25, 2021
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: Suggested Citation