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Mitigating Vulnerability to Oil Price Risk— Applicability of Risk Models to Pakistan’s Energy Problem

Jamshed Uppal and Syeda Rabab Mudakkar
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Syeda Rabab Mudakkar: Lahore School of Economics, Lahore.

The Pakistan Development Review, 2014, vol. 53, issue 3, 293-308

Abstract: The paper examines the prospects of reducing the price risk of Pakistan’s oil imports through hedging in the oil futures market. The paper evaluates the ex-ante cross hedge strategies over the 1990–2013 period using 1–4 months futures NYMEX in order to see how to reduce price risk? Our results indicate that in all cases except one, ex-ante hedging would have been effective in reducing price risk. We provide quantitative estimates of the return/risk tradeoffs from hedging Pakistan’s oil imports, and find that futures hedging offers the country significant risk-reduction potential.

Keywords: Risk-return Trade-off; Hedging; Oil Prices (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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