Pricing and hedging spread approaches.

There are many objectives to this project. For the next three month, the primary goal is to ensure that there’s a constant supply of jet fuel oil for the company (replaced with Crude oil to assume). Second, 10,000 barrels will be purchased for the production of operational components. Last but not least, the objective is to devise a cost-saving strategy. At minimum 70% of the $100,000 initially available will be used in order to hedge oil prices. 30% will go to speculative purposes to make short-term gains in other agreements. A short Future hedge is the primary method of hedging. The investor is seeking protection from the loss caused by fluctuating cash markets values. If an investor plans to sell a product at some future date, but believes the price will rise before the maturity period ends (Carmona-Durrleman, 2003). The short hedge is sold by the buyer of a jet-oil company to repurchase their future contracts. According to the forecast, a fall in cash prices will be offset by futures transaction gains. You should hedge your investment capital by at least $70,000 Because of volatility in oil markets, it is essential to hedge jet fuel price risks. These have a high return potential. The short-term hedge futures method can cause the assets to experience value decline and time decay as their maturity dates approach. Our proposal calls for vertical spreads to cover at least 30% of 10,000 barrels. This will help to reduce the cost of obtaining and storing the required barrels for aircraft operation. The futures instrument used to hedge my risk is called short hedge. This strategy is designed to shield the investor from volatility caused by the use of an index technique. This is because the gold index technique does not have any correlation with the primary risk-mitigating item. To mitigate the jet oil risk, I used future contract price technology. Because of the volatility seen in oil prices over the last 4 months (April’s highest price since the beginning of this year), I chose to use the future contract price strategy. It is likely the price of oil will decline rather than rise in the short-term, based on this information. The contract price can be used to mitigate the price inflation risk resulting from Russia’s ongoing war with Ukraine. A contract price is essential because of the sudden rise in oil prices across Europe. This will increase Europe’s demand for the commodity in the short term.

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