Assessment of proxy-hedging in jet-fuel markets

Dominique Guegan (), Marius Frunza () and Rostislav Haliplii
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Dominique Guegan: UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Paris 1 Panthéon-Sorbonne, IPAG Business School, University of Ca’ Foscari [Venice, Italy]
Marius Frunza: Schwarzthal Kapital
Rostislav Haliplii: UP1 - Université Paris 1 Panthéon-Sorbonne

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The aim of this research is to explore the risk associated with hedging in jet fuel markets. It focuses on finding the most effective proxy hedge instrument for the Singapore spot market. Due to its particularities, this market does not exhibit the same features as traditional financial markets do. In appearance, it seems very related to the oil market, but in reality it exhibits insufficient liquidity and shows unusual volatility clustering effects. This behavior has a direct impact on the hedging strategies of refineries, airline companies and jet fuel traders. The paper explores the econometric features of the jet fuel price and underlines the need of fat tail distributions and volatility clustering models. Also, it examines the density forecasting capacity of various proxy hedge instruments including kerosene, crude and gasoil futures. The results show that Singapore Gasoil Futures contract is the best candidate for hedging the Singapore Jet Fuel spot price.

Keywords: Oil Distillates; Gasoil; Jet Fuel; Hedging Strategies; Market Liquidity; Market Efficiency; Time Series Modeling (search for similar items in EconPapers)
Date: 2018-07-05
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Published in IRMBAM 2018, Jul 2018, Nice, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01905479

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