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Petroleum Products Price Hedging
The risk management of energy commodities such as oil is quite well developed. However, where the commodity is not traded extensively, there might be no direct access to the risk management tools such as options and futures. In this project, we conducted an analysis of the risks associated with the price of an oil product by designing an over-the-counter insurance agreement.
We managed to design and price an insurance agreement for vacuum resid, which is the heaviest of the distillation cuts mostly used in the construction industry. For this product, we assessed market risks, price intrinsic risk as well as exchange rate risk to create a multi-dimensional pagreement.
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