Analysis of Selected Jet Fuel Price Hedging Strategies

Abstract

This thesis presents a cross-hedging the risk associated with a price of jet fuel for a corporation. The main goal is to apply selected hedging strategies to an airline and evaluate them based on different criteria. In the first part of the thesis commodity risk, the derivative instruments, simulation model is described, as a base needed for practical part of the thesis. Historical daily price of jet fuel, heating oil and crude oil from period January 2017 to February 2021 are used for Monte Carlo simulation of multiple scenarios for the price development, based on Variance gamma process. Futures, call options and collars are selected strategies used to cross-hedge the jet fuel price risk. The results obtained from each strategy are evaluated based on approach to risk and the initial cost