 Analyzing the dynamics of the refining margin: implications for valuation and hedgingAndr�s Garc�a Mirantes, Javier Población and Gregorio Serna Quantitative Finance, 2012, vol. 12, issue 12, 1839-1855 Abstract: It is well known that the prices of crude oil and its primary refined products (i.e., heating oil and gasoline) are cointegrated. In this paper, we extend this empirical evidence by showing that the refining margin is stationary and therefore exhibits different dynamics from crude oil or its primary refined products. Furthermore, we show that crude oil, heating oil and gasoline are not only cointegrated but also share common long-term dynamics. This finding has crucial implications in terms of managing and hedging the risk faced by refining companies because the common long-term trend finding implies that the refining margin risk only reflects short-term effects. Specifically, in this paper, a way to hedge the refining margin with crack-spread options is analyzed, and we find that assuming a common long-term trend for crude oil, heating oil and gasoline is the most accurate approach to hedging. Date: 2012 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:12:y:2012:i:12:p:1839-1855 Ordering information: This journal article can be ordered from DOI: 10.1080/14697688.2012.708430 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.