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Futures Contracts and Hedging Strategy
Futures Contracts and Hedging Strategy
| ORDER # | 100102 |
| TYPE | COURSE WORK |
| WRITING LEVEL | MASTERS |
| WRITING STYLE | APA |
| # OF SOURCES | 3 |
| NUMBER OF PAGES & WORD COUNT | 4 ≈ 1,100 WORDS |
About the 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 data set 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 in
(Calculations do not count as words) 1000 words
Grading Rubric
Your assignment will be graded based on the following rubric:
| Category | Unacceptable (0-1) | Needs Improvement (2-3) | Good (4) | Excellent (5) | Total Possible Points |
| Organization (x3) | There is no apparent organization to the answers. They shows some coherence but ideas lack unity. | There is some level of organization though digressions, ambiguities, irrelevance are too many. Transition evident but not used throughout the paper. | Answers are coherent and logically organized with transitions used between ideas and paragraphs to create coherence. Overall unity of ideas is present. | Answers show high degree of attention to logic and reasoning of points. Unity clearly leads the reader to the conclusion and stirs thought regarding the topic. | 15 |
| Content (x3) | Answers lack evidence of critical thinking. Writer uses superficial, simplistic, or irrelevant reasons and unjustifiable claims. Makes illogical, inconsistent inference. | Answers are primarily opinion without valid support. Little critical thinking is evident. Follows existing evidence to obtain conclusions. | Ideas are logical and reasoned, but demonstrate lesser degree of originality. Follows evidence and reason lead to obtain justifiable, logical conclusion. | Writer develops logical and reasoned independent ideas that go beyond predictable outcomes or the conclusions of researched materials. Follows where evidence and reason lead in order to obtain defensible, thoughtful, logical conclusions or solutions. | 15 |
| Grammar & Mechanics(x2) | Sentences are unclear and many grammatical errors in structure make answers virtually unreadable. Spelling, punctuation, capitalization, and vocabulary usage contain major flaws that impede readability. | Most spelling, punctuation, and grammar correct allowing reader to progress through the answers. Some errors remain. | Answers have few spelling, punctuation, and grammatical errors allowing reader to follow ideas clearly. Very few fragments or run-ons. | Answers are free of distracting spelling, punctuation, and grammatical errors; absent of fragments, comma splices, and run-ons. | 5 |
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