Coursework-Hedging using futures. Accounting, Finance, SPSS Coursework
assignment: Assume that you were approached by the CFO of USC Airlines, an established hypothetical airline, in your capacity as a Risk Analyst who is familiar with Derivative products.
The CFO is debating the effectiveness and business viability of hedging jet fuel and is seeking your advice. Her opinion is mainly driven by an international report that shows that not all airlines hedge jet fuel.
Question: The CFO appreciates a concrete hedging analysis to validate your advice. (hedge or not hedge). not hedge
A dataset is collected from trading platforms and is provided for:
· Spot market Jet Fuel,
· HO1 Commodity (Future), and
· CO1 Commodity (Future).
See the data file in Excel. The file contains a description of the data series as if you are accessing the market yourself.
2 a- Calculate and interpret the minimum variance hedge ratio for each of the future commodity. Use the OLS method and comment on the significance of the results. (Support files for using regressions in OLS are provided)
2 b- Discuss whether differences in the hedge ratio between the two commodities will have any effect on the effectiveness of the hedge.
2 c- Recommend a convenient hedging strategy to the CFO using the data provided and explain the corresponding hedging position.
2 d- What are the potential factors that may weaken your suggested strategy. Discuss(Calculations do not count as words) 600words
Coursework-Hedging using futures
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Course
Instructor
Date
Assignment: Assume that you were approached by the CFO of USC Airlines, an established hypothetical airline, in your capacity as a Risk Analyst who is familiar with Derivative products.
The CFO is debating the effectiveness and business viability of hedging jet fuel and is seeking your advice. Her opinion is mainly driven by an international report that shows that not all airlines hedge jet fuel.
Question: The CFO appreciates a concrete hedging analysis to validate your advice. (hedge or not hedge). not hedge
A dataset is collected from trading platforms and is provided for:
Change in spot
Change in HO1
Change in CO1
Spot market Jet Fuel,
HO1 Commodity (Future), and
CO1 Commodity (Future).
2 a- Calculate and interpret the minimum variance hedge ratio for each of the future commodity. Use the OLS method and comment on the significance of the results. (Support files for using regressions in OLS are provided)
QF/QS=Δ in Spot Price (ΔS) / Δ in Future Price (ΔF)
HO1 Commodity
Where y is Δ S and x is ΔF, then
Regression Statistics
Multiple R
0.87554535
R Square
0.76657966
Adjusted R Square
0.76537023
Standard Diviation
3.66907638
Observation
195
ANOVA
df
SS
MS
F
Significance F
Regression Analysis
1
8532.75759
8532.75759
633.834542
6.93472E-63
Residual
193
2598.18944
13.4621215
Total
194
11130.947
Coefficients
Standard Deviation
t Stat
P-value
Lower 95%
Upper 95%
Intercept
-0.03
0.26
-0.11
0.91
-0.55
0.49
X Variable 1
1.07
0.04
25.18
0.00
0.99
1.15
Y=1.068x-0.03
* The correlation coefficient (Multiple R) is 0.88
* The minimum variance hedge ratio (MVHR) for HO1 Commodity is 1.07
CO1 Commodity
regression analysis
Multiple R
0.77566
R Square
0.60165
Adjusted R Square
0.59959
standard deviation
4.79312
observation
195
ANOVA
df
SS
MS
F
Significance F
regression analysis
1
6696.96459
6696.96459
291.501869
1.96215E-40
residuals
193
4433.98244
22.9740023
total
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