Fuel Hedging and Risk Management (eBook, PDF)
Strategies for Airlines, Shippers and Other Consumers
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Fuel Hedging and Risk Management (eBook, PDF)
Strategies for Airlines, Shippers and Other Consumers
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A hands-on guide to navigating the new fuel markets Fuel Hedging and Risk Management: Strategies for Airlines, Shippers and Other Consumers provides a clear and practical understanding of commodity price dynamics, key fuel hedging techniques, and risk management strategies for the corporate fuel consumer. It covers the commodity markets and derivative instruments in a manner accessible to corporate treasurers, financial officers, risk managers, commodity traders, structurers, as well as quantitative professionals dealing in the energy markets. The book includes a wide variety of key topics…mehr
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- Produktdetails
- Verlag: John Wiley & Sons
- Seitenzahl: 250
- Erscheinungstermin: 4. März 2016
- Englisch
- ISBN-13: 9781119026754
- Artikelnr.: 44870817
- Verlag: John Wiley & Sons
- Seitenzahl: 250
- Erscheinungstermin: 4. März 2016
- Englisch
- ISBN-13: 9781119026754
- Artikelnr.: 44870817
Commodities and Price Formation 1 Energy as a Strategic Resource 1 Energy
as a Tradable Commodity 3 Energy Commodities 5 Crude Oil 5 Oil Products 8
Natural Gas 11 Coal 11 Price Drivers in Energy Markets 12 Geopolitical
Risks 12 The Geopolitical Chessboard - The Petrodollar System and Rising
China 12 Long-Term Supply and Demand 15 Short-Term Supply and Demand:
Supply Chain and Infrastructure 17 Financialization of Commodities 19
Market-Specific Price Drivers 19 Summary 20 CHAPTER 2 Major Energy
Consumers and the Rationale for Fuel Hedging 23 Energy Market Participants
23 Risks Faced by Fuel Consumers - The Case of the Airline Industry 27
Airline Industry - Metrics and Operational Risks 27 Airline Industry -
Financial Risks 30 Risks Faced by Other Major Fuel Consumers 35 Shipping
Companies 35 Land Transportation 37 Oil Refining, Petrochemicals, and Power
Generation 37 Industrial Users of Energy Commodities 38 The Case for
Hedging 39 The Effect of Hedging on Airline Stock Price Volatility 39
Commodity Derivative Markets 41 A Brief History of Commodity Markets 42
Commodity Spot Markets and the Need for Standardization 43 Forward
Contracts 44 Futures Contracts 45 Option Contracts 50 Summary 53 Appendix A
54 CHAPTER 3 Developing Fuel Hedging Strategies 55 The Rationale for
Commodity Hedging 55 Developing a Fuel Hedging Program 57 Risk
Identification and Assessment 57 Types of Risk 58 Risk Identification 59
Forecasting Prices and Conducting Simulations 59 Articulating the Firm's
Risk Appetite 60 Setting Objectives for Fuel Hedging and the Scope of
Hedging 60 Identifying Risk Managers within the Organization 61 Determining
the Scope of the Hedge Program 61 Implementation of Hedging 62 Selecting
the Fuel Cost Management Method 62 Identifying the Underlying to Hedge with
and Basis Risk 63 Quantity and Tenor of Hedging 66 Selection of Instruments
for Hedging 67 Market Risk 68 Management of the Unwanted Risks of a
Portfolio 68 Credit Risk 68 Liquidity Risk 69 Operational Risk 69 Legal and
Reputational Risk 70 Monitoring and Calibration of the Hedging Program 70
Template for a Risk Management Policy 71 The Airline Industry - Trends in
Fuel Risk Management 71 Magnitude of Fuel Price Risk 71 Underlyings and
Hedging Instruments 73 Quantity and Tenor of Hedging 74 Recent Developments
75 Summary 75 CHAPTER 4 Shipping and Airlines - Basics of Fuel Hedging 77
Spot-Forward Relationships 77 Theories on the Shape of Forward Curves 78
Spot-Forward Relationships for Investment Assets 79 Spot-Forward
Relationships for Commodities 80 Spot and Futures Volatility 81 Options 82
Call and Put Options 83 Put-Call Parity 84 Option-Based Hedging for a
Shipping Company 85 Implied Volatility and the Black-Scholes Model 86 The
Black-Scholes-Merton Model 88 Black's Model for Pricing Options on Futures
Contracts 89 The Greeks 89 Delta 90 Gamma 92 Theta 92 Vega 94 Rho 94
Higher-Order Greeks 95 Black's Model Option Greeks 95 Asian Swaps and
Options 96 Asian Swap-Based Hedging for a Shipping Company 97 Option
Structures 97 Call Spreads and Put Spreads 97 Collars, Three-Ways, and
Calendar Spread Options 99 Straddles, Strangles, and Butterflies 100 Capped
Forwards 102 Capped Swap Usage for a Shipping Company 103 Derivatives
Pricing 104 Stochastic Processes for Asset Prices - An Introduction 104
Brownian Motion and Wiener Processes 104 Itô's Lemma 106 Option Pricing
Using the Black-Scholes-Merton Formula 107 Asian Option Pricing 109 Summary
112 CHAPTER 5 Advanced Hedging and Forward Curve Dynamics 113 Swap and
Vanilla Option-Based Structures 113 Zero-Cost Structures and the Usage of
Options 114 Leveraged Swaps 114 Capped Swaps 116 Floored Swaps 117 The
Volatility Surface 118 Multi-option Structures 119 Zero-Cost Collar 120
Three-Ways 120 Risk Reversals and their Hedging 121 Early-Expiry Options
and Instantaneous Volatility Term Structures 122 The Samuelson Effect and
the Storage Theory 122 Implied Volatility of Energy Futures Contracts 123
Early-Expiry Profile Construction 124 Commodity Swaptions and Extendible
Swaps 127 Usage of Commodity Swaptions and the Reasons for their Popularity
127 Swaption vs. a Basket of Options 128 Understanding Commodity Futures
Term Structures 133 The Normal Backwardation or Keynesian Theory 133 The
Theory of Storage 134 Term-Structure Models 135 Schwartz's One-Factor Model
135 Schwartz's Two-Factor Model 136 Gabillon's Model 137 Gabillon's
Stochastic Equation for Futures 138 Early-Expiry Profile Using Gabillon's
Model 139 Importance of Early-Expiry Profile for Exotic Products 139
Summary 140 CHAPTER 6 Exotic Hedging and Volatility Dynamics 141 Extendible
Option Structures 142 Extendible Collar 142 Extendible Three-Ways 143
Cancellable - Extendible Parity 144 Pricing Extendible Option Structures
146 Volatility Models 150 Stochastic Volatility Models 150 Barrier
Option-Based Structures 152 Knock-Out Options and Knock-In Options 152
Relationship between KI and KO Options 154 Knock-Out Swaps 154 Airbag
Structure 154 KIKOs and Combinations of KI and KO Options 155 Accumulator
Structures 156 European or Asian-Style Barrier Options 157 Barrier Payouts
and Non-linearity - Digital Options and Replication 157 The Reflection
Principle 160 Barrier Options Under the Black-Scholes Framework 161
Put-Call Symmetry 163 MTM Analysis of Barrier Options Under the
Black-Scholes Framework 163 Pricing and Risk Management of Barriers with
Real-World Constraints 165 Barrier Options on a Nearby Futures Contract 167
Local Volatility Models 168 Bermudan Extendible Structures 170 Valuation of
Bermudan Extendibles 174 Longstaff-Schwartz Method and Exercise Boundaries
174 Extendible vs. Auto-callable Transactions 177 Bermudan Extendibles and
the Forward Skew 177 The Inverse Leverage Effect in Commodities Markets 179
Target Redemption Structures 180 Target Redemptions and the 2008 Debacle
182 Defining Leverage 183 Target Redemption Pricing and Risk Management 184
The Mean-Reversion Trap 185 Target Redemption and Trading Risks 186 Sticky
Strike and Sticky Delta 187 Sticky Strike Approach 187 Sticky Delta or
Sticky Moneyness 188 Gamma/Theta Ratio 188 Summary 190 CHAPTER 7 Fuel
Hedging and Counterparty Risk 191 The Importance of Valuation and
Transaction Monitoring 191 Market Risk Management 192 Fuel Hedgers: Lottery
Tickets and Spring Cleaning 193 Value at Risk 194 Liquidity Risk 195
Counterparty Risk 195 Credit Risk and Counterparty Risk 196 Expected
Exposure 198 Potential Future Exposure 198 Measurement of Counterparty Risk
for a Portfolio of Trades 198 Peak PFE 198 Common PFE Misconceptions and
Pitfalls 200 Credit Exposure Optimization Techniques 202 Bilateral Netting
Agreements 202 Credit Support Annexes 203 CSA Negotiations - Key
Considerations 203 Funding Valuation Adjustment 206 Fuel Hedgers and FVA
207 The FVA Debate 209 The Price of Counterparty Credit Risk 209 Credit
Derivatives and Credit Default Swaps 210 Credit Valuation Adjustment 212
Common CVA Mis-steps 213 Gap Options and Collateralization Agreements 213
Debt Valuation Adjustment 214 Fuel Hedgers and Debt Valuation Adjustments
214 The Case for Bilateral CVA 215 Wrong-Way Risk 216 Counterparty Credit
Risk Hedging 216 Contingent CDS 216 Capped Exposure Derivatives 217 Summary
217 CHAPTER 8 Conducting Scenario Analysis 219 Scenario Analysis for
Vanilla Products 220 Scenario Analysis for Path-Dependent Products 224
MTM-Based Scenario Analysis and Potential Future Exposures 229 Beyond
Payoffs and MTMs - Collateralization and Funding Requirement Analysis 230
Hedge Effectiveness 231 Summary 233 CHAPTER 9 Financing and Risk
Management: Bundled Solutions 235 Structured Aviation Finance Overview 235
Airline Financing via Debt and Aircraft Leases 238 Term Loans 239 Export
Credit Agency Debt 240 Leases 240 Rationale for Combining Hedging and
Financing 243 Reduction of Default Risk through Hedging 244 Oil-Linked
Financing Structures 245 Flexible Oil-Insulated Lease 246 Cancellable
Hedged Loans as Interest Cheapeners 250 Summary 252 CHAPTER 10 Applied Fuel
Hedging - Case Studies 253 Case Study 1: YM Cargo Inc. 253 Business Risks
253 Operational Mitigants 254 Risk Appetite 255 Hedge Program Objectives
and Scope 255 Implementation of Hedging 256 Portfolio Monitoring 260 Case
Study 2: Worldwide Airlines 260 Evolution of WWA's Hedging Strategy 262
Hedging Transactions Executed by WWA 264 Hedge Portfolio Analysis 267
Credit Lines and Collateralization Issues 269 Restructuring WWA's Portfolio
271 Counterparty Risk and Funding Considerations for BMC 272 Summary 276
Bibliography 277 Index 281
Commodities and Price Formation 1 Energy as a Strategic Resource 1 Energy
as a Tradable Commodity 3 Energy Commodities 5 Crude Oil 5 Oil Products 8
Natural Gas 11 Coal 11 Price Drivers in Energy Markets 12 Geopolitical
Risks 12 The Geopolitical Chessboard - The Petrodollar System and Rising
China 12 Long-Term Supply and Demand 15 Short-Term Supply and Demand:
Supply Chain and Infrastructure 17 Financialization of Commodities 19
Market-Specific Price Drivers 19 Summary 20 CHAPTER 2 Major Energy
Consumers and the Rationale for Fuel Hedging 23 Energy Market Participants
23 Risks Faced by Fuel Consumers - The Case of the Airline Industry 27
Airline Industry - Metrics and Operational Risks 27 Airline Industry -
Financial Risks 30 Risks Faced by Other Major Fuel Consumers 35 Shipping
Companies 35 Land Transportation 37 Oil Refining, Petrochemicals, and Power
Generation 37 Industrial Users of Energy Commodities 38 The Case for
Hedging 39 The Effect of Hedging on Airline Stock Price Volatility 39
Commodity Derivative Markets 41 A Brief History of Commodity Markets 42
Commodity Spot Markets and the Need for Standardization 43 Forward
Contracts 44 Futures Contracts 45 Option Contracts 50 Summary 53 Appendix A
54 CHAPTER 3 Developing Fuel Hedging Strategies 55 The Rationale for
Commodity Hedging 55 Developing a Fuel Hedging Program 57 Risk
Identification and Assessment 57 Types of Risk 58 Risk Identification 59
Forecasting Prices and Conducting Simulations 59 Articulating the Firm's
Risk Appetite 60 Setting Objectives for Fuel Hedging and the Scope of
Hedging 60 Identifying Risk Managers within the Organization 61 Determining
the Scope of the Hedge Program 61 Implementation of Hedging 62 Selecting
the Fuel Cost Management Method 62 Identifying the Underlying to Hedge with
and Basis Risk 63 Quantity and Tenor of Hedging 66 Selection of Instruments
for Hedging 67 Market Risk 68 Management of the Unwanted Risks of a
Portfolio 68 Credit Risk 68 Liquidity Risk 69 Operational Risk 69 Legal and
Reputational Risk 70 Monitoring and Calibration of the Hedging Program 70
Template for a Risk Management Policy 71 The Airline Industry - Trends in
Fuel Risk Management 71 Magnitude of Fuel Price Risk 71 Underlyings and
Hedging Instruments 73 Quantity and Tenor of Hedging 74 Recent Developments
75 Summary 75 CHAPTER 4 Shipping and Airlines - Basics of Fuel Hedging 77
Spot-Forward Relationships 77 Theories on the Shape of Forward Curves 78
Spot-Forward Relationships for Investment Assets 79 Spot-Forward
Relationships for Commodities 80 Spot and Futures Volatility 81 Options 82
Call and Put Options 83 Put-Call Parity 84 Option-Based Hedging for a
Shipping Company 85 Implied Volatility and the Black-Scholes Model 86 The
Black-Scholes-Merton Model 88 Black's Model for Pricing Options on Futures
Contracts 89 The Greeks 89 Delta 90 Gamma 92 Theta 92 Vega 94 Rho 94
Higher-Order Greeks 95 Black's Model Option Greeks 95 Asian Swaps and
Options 96 Asian Swap-Based Hedging for a Shipping Company 97 Option
Structures 97 Call Spreads and Put Spreads 97 Collars, Three-Ways, and
Calendar Spread Options 99 Straddles, Strangles, and Butterflies 100 Capped
Forwards 102 Capped Swap Usage for a Shipping Company 103 Derivatives
Pricing 104 Stochastic Processes for Asset Prices - An Introduction 104
Brownian Motion and Wiener Processes 104 Itô's Lemma 106 Option Pricing
Using the Black-Scholes-Merton Formula 107 Asian Option Pricing 109 Summary
112 CHAPTER 5 Advanced Hedging and Forward Curve Dynamics 113 Swap and
Vanilla Option-Based Structures 113 Zero-Cost Structures and the Usage of
Options 114 Leveraged Swaps 114 Capped Swaps 116 Floored Swaps 117 The
Volatility Surface 118 Multi-option Structures 119 Zero-Cost Collar 120
Three-Ways 120 Risk Reversals and their Hedging 121 Early-Expiry Options
and Instantaneous Volatility Term Structures 122 The Samuelson Effect and
the Storage Theory 122 Implied Volatility of Energy Futures Contracts 123
Early-Expiry Profile Construction 124 Commodity Swaptions and Extendible
Swaps 127 Usage of Commodity Swaptions and the Reasons for their Popularity
127 Swaption vs. a Basket of Options 128 Understanding Commodity Futures
Term Structures 133 The Normal Backwardation or Keynesian Theory 133 The
Theory of Storage 134 Term-Structure Models 135 Schwartz's One-Factor Model
135 Schwartz's Two-Factor Model 136 Gabillon's Model 137 Gabillon's
Stochastic Equation for Futures 138 Early-Expiry Profile Using Gabillon's
Model 139 Importance of Early-Expiry Profile for Exotic Products 139
Summary 140 CHAPTER 6 Exotic Hedging and Volatility Dynamics 141 Extendible
Option Structures 142 Extendible Collar 142 Extendible Three-Ways 143
Cancellable - Extendible Parity 144 Pricing Extendible Option Structures
146 Volatility Models 150 Stochastic Volatility Models 150 Barrier
Option-Based Structures 152 Knock-Out Options and Knock-In Options 152
Relationship between KI and KO Options 154 Knock-Out Swaps 154 Airbag
Structure 154 KIKOs and Combinations of KI and KO Options 155 Accumulator
Structures 156 European or Asian-Style Barrier Options 157 Barrier Payouts
and Non-linearity - Digital Options and Replication 157 The Reflection
Principle 160 Barrier Options Under the Black-Scholes Framework 161
Put-Call Symmetry 163 MTM Analysis of Barrier Options Under the
Black-Scholes Framework 163 Pricing and Risk Management of Barriers with
Real-World Constraints 165 Barrier Options on a Nearby Futures Contract 167
Local Volatility Models 168 Bermudan Extendible Structures 170 Valuation of
Bermudan Extendibles 174 Longstaff-Schwartz Method and Exercise Boundaries
174 Extendible vs. Auto-callable Transactions 177 Bermudan Extendibles and
the Forward Skew 177 The Inverse Leverage Effect in Commodities Markets 179
Target Redemption Structures 180 Target Redemptions and the 2008 Debacle
182 Defining Leverage 183 Target Redemption Pricing and Risk Management 184
The Mean-Reversion Trap 185 Target Redemption and Trading Risks 186 Sticky
Strike and Sticky Delta 187 Sticky Strike Approach 187 Sticky Delta or
Sticky Moneyness 188 Gamma/Theta Ratio 188 Summary 190 CHAPTER 7 Fuel
Hedging and Counterparty Risk 191 The Importance of Valuation and
Transaction Monitoring 191 Market Risk Management 192 Fuel Hedgers: Lottery
Tickets and Spring Cleaning 193 Value at Risk 194 Liquidity Risk 195
Counterparty Risk 195 Credit Risk and Counterparty Risk 196 Expected
Exposure 198 Potential Future Exposure 198 Measurement of Counterparty Risk
for a Portfolio of Trades 198 Peak PFE 198 Common PFE Misconceptions and
Pitfalls 200 Credit Exposure Optimization Techniques 202 Bilateral Netting
Agreements 202 Credit Support Annexes 203 CSA Negotiations - Key
Considerations 203 Funding Valuation Adjustment 206 Fuel Hedgers and FVA
207 The FVA Debate 209 The Price of Counterparty Credit Risk 209 Credit
Derivatives and Credit Default Swaps 210 Credit Valuation Adjustment 212
Common CVA Mis-steps 213 Gap Options and Collateralization Agreements 213
Debt Valuation Adjustment 214 Fuel Hedgers and Debt Valuation Adjustments
214 The Case for Bilateral CVA 215 Wrong-Way Risk 216 Counterparty Credit
Risk Hedging 216 Contingent CDS 216 Capped Exposure Derivatives 217 Summary
217 CHAPTER 8 Conducting Scenario Analysis 219 Scenario Analysis for
Vanilla Products 220 Scenario Analysis for Path-Dependent Products 224
MTM-Based Scenario Analysis and Potential Future Exposures 229 Beyond
Payoffs and MTMs - Collateralization and Funding Requirement Analysis 230
Hedge Effectiveness 231 Summary 233 CHAPTER 9 Financing and Risk
Management: Bundled Solutions 235 Structured Aviation Finance Overview 235
Airline Financing via Debt and Aircraft Leases 238 Term Loans 239 Export
Credit Agency Debt 240 Leases 240 Rationale for Combining Hedging and
Financing 243 Reduction of Default Risk through Hedging 244 Oil-Linked
Financing Structures 245 Flexible Oil-Insulated Lease 246 Cancellable
Hedged Loans as Interest Cheapeners 250 Summary 252 CHAPTER 10 Applied Fuel
Hedging - Case Studies 253 Case Study 1: YM Cargo Inc. 253 Business Risks
253 Operational Mitigants 254 Risk Appetite 255 Hedge Program Objectives
and Scope 255 Implementation of Hedging 256 Portfolio Monitoring 260 Case
Study 2: Worldwide Airlines 260 Evolution of WWA's Hedging Strategy 262
Hedging Transactions Executed by WWA 264 Hedge Portfolio Analysis 267
Credit Lines and Collateralization Issues 269 Restructuring WWA's Portfolio
271 Counterparty Risk and Funding Considerations for BMC 272 Summary 276
Bibliography 277 Index 281