Biodiesel hedging under binding renewable fuel standard mandates

Jason R.V. Franken, Scott H. Irwin and Philip Garcia

Energy Economics, 2021, vol. 96, issue C

Abstract: We apply an encompassing framework to assess the viability of hedging spot biodiesel price risk for four U.S. markets with a conventionally used heating oil futures contract and a soybean oil futures contract based on the logic that supply shifts (i.e., price of soybean oil as an input) drive biodiesel prices when binding blending mandates are in place. Results indicate that soybean oil futures should in fact be part of a composite hedge, and that in some instances greater hedging weight should be placed on the soybean oil futures contract than the conventionally used heating oil futures contract.

Keywords: Biodiesel; Composite hedge; Cross-hedge; Encompassing; Hedging effectiveness (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:96:y:2021:i:c:s0140988321000657

DOI: 10.1016/j.eneco.2021.105160

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