By Simo M. Dafir, Vishnu N. Gajjala
A hands-on advisor to navigating the hot gasoline markets
Fuel Hedging and hazard administration: concepts for airways, Shippers and different shoppers provides a transparent and useful realizing of commodity expense dynamics, key gas hedging suggestions, and probability administration techniques for the company gasoline purchaser. It covers the commodity markets and spinoff tools in a fashion obtainable to company treasurers, monetary officials, hazard managers, commodity investors, structurers, in addition to quantitative pros dealing within the strength markets.
The e-book contains a big choice of key subject matters on the topic of commodities and derivatives markets, monetary chance research of commodity shoppers, hedge application layout and implementation, vanilla derivatives and unique hedging items. The ebook is exclusive in delivering intuitive tips on realizing the dynamics of ahead curves and volatility time period constitution for commodities, gasoline derivatives valuation and counterparty possibility innovations reminiscent of CVA, DVA and FVA. absolutely up to date and suitable, this booklet contains accomplished case reviews that illustrate the hedging strategy from notion to execution and tracking of hedges in various situations.
This functional consultant might help the reader:
- Gain professional perception into all features of gas hedging, cost and volatility drivers and dynamics.
- Develop a framework for monetary probability research and hedge programs.
- Navigate risky strength markets by means of using potent threat administration techniques.
- Manage undesirable dangers linked to commodity derivatives via realizing liquidity and credits chance calculations, publicity optimization recommendations, credits fees equivalent to CVA, DVA, FVA, etc.
Praise for Fuel Hedging and possibility Management
"Risk administration is an artwork, now not a technological know-how, however it definitely is helping to grasp loads of technology. during this ebook, the authors supply a great assessment of either qualitative and quantitative facets of hazard administration and the way to layout and implement potent win-win gas oil hedging recommendations that might in achieving the specified pursuits less than common and severe industry conditions.
In addition to discussing key foundational matters, the e-book additionally discusses a framework to appreciate and deal with highly very important second-order results, resembling credits chance or margin calls or asset-liability mismatches, that have the aptitude to show a good suggestion right into a undesirable outcome.
A needs to learn for somebody within the finance division of a company, exchange residence, or monetary enterprise all for gasoline oil hedging."
—Diego Parrilla, Former worldwide Head of Commodity suggestions and Head of Commodities, financial institution of America
"This booklet presents hugely beneficial insights into hedging and probability administration methodologies, in addition to thought, for the clients of strength items. Dafir offers instinct stemming from not only top-tier commodity structuring services, but in addition broader perception from his past event as a credits derivatives and exotics trader."
—Mitch Matharu, former Head of Structuring, Merrill Lynch
"An Absolute needs to learn. From the basics of oil markets to the major issues in negotiating a credits contract and minimizing hedging charges, passing by way of the subtleties of implied volatility floor development and its implications in derivatives pricing, this ebook provide you with the crucial practitioner's toolbox, invaluable no matter if you're a amateur or a professional gasoline trader."
—Frederic Cogny, worldwide Head of Commodities based items buying and selling, average Chartered Bank
"In this publication, Dafir blends his deep wisdom of the commodity markets and the vagaries of the monetary industry together with his awesome mathematical skill to discover gas hedging in a fashion available to gas Procurement Departments, CFOs and board members."
—Mark Long, Former Head and dealing with Director of Merrill Lynch Commodities Asia
". . . This booklet is a hands-on consultant for someone attracted to "Fuel Hedging and threat Management", together with legal professionals excited about the execution of commodities hedging transactions and comparable ISDA and CSA negotiations."
—Justin Boyd, Former Head of monetary Markets criminal, ordinary Chartered Bank
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Extra resources for Fuel hedging and risk management : strategies for airlines, shippers and other consumers
Sample text
This is usually the case for airlines with higher growth prospects that need to purchase and finance more aircraft. For newer airlines, which depend on an asset-light model for expansion, aircraft lease rentals can be a major cost. Essentially, aircraft can be bought outright by the airline from manufacturers or leased from specialized leasing firms that have a large portfolio of aircraft. Aircraft can also be purchased, sold to a leasing company, and leased back over a period – this is called “sale-and-leaseback,” which is a common means of financing purchases.
16 FUEL HEDGING AND RISK MANAGEMENT Long-term prices are affected by the amount of reserves remaining. Proved reserves of oil (also called “1P”) are those reserves that can be recovered in the future from known reservoirs with reasonable certainty (usually 90% confidence) under present-day economic and operating conditions. Probable reserves correspond to a 50% confidence level of recovery (called “2P” or proved plus probable), and possible reserves are those that have a less likely chance of being recovered (at least a 10% chance) and are called “3P” (proved + probable + possible).
As refineries are large installations, which are constructed over a long period of time, refining capacity is finite and inelastic and refineries are typically configured to handle a specific type of crude oil. Thus, price trends for crude oil will be affected by the refining capacity available to process that particular blend of oil. For example, if it is more profitable to refine heavy crude oil in a complex refinery (vs. light crude oil), complex refineries will run at full capacity, reducing the premium for light crude oil.