 A dynamic hedging approach for refineries in multiproduct oil marketsQiang Ji and Ying Fan Energy, 2011, vol. 36, issue 2, 881-887 Abstract: A multiproduct portfolio hedge ratio strategy for oil futures is investigated using a multivariate GARCH model based on dynamic conditional correlation and an error correction model (DCC-ECM-MVGARCH). By considering the characteristics of refiner profits from crack spread and the mutual relations among crude oil, gasoline and heating oil spot and future prices, we estimate the time-varying optimal hedge ratios for the oil-cracking margin. In addition, a naïve strategy, a traditional OLS model and dynamic B-GARCH model are selected to compare with our model for hedge effectiveness. Comparison of hedge effectiveness for in-sample and out-of-sample data reveals that the dynamic DCC-ECM-MVGARCH model is more sensitive to market fluctuations, provides a more accurate description of changes in volatility and has more advantages than other models. Therefore, the empirical results prove that application of the DCC-ECM-MVGARCH model for hedging of oil market portfolio can play an important role in avoiding the double risk of crude oil and oil product markets for refineries. Keywords: Hedge; GARCH; Dynamic conditional correlation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:36:y:2011:i:2:p:881-887 DOI: 10.1016/j.energy.2010.12.025 Access Statistics for this article Energy is currently edited by Henrik Lund and Mark J. Kaiser More articles in Energy from Elsevier |
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