Interest rate risk in long-dated commodity options positions: To hedge or not to hedge?

Cheng, B; Nikitopoulos, CS; Schlögl, E

Interest rate risk in long-dated commodity options positions: To hedge or not to hedge?

Cheng, B Nikitopoulos, CS Schlögl, E

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Publication Type:: Journal Article
Citation:: Journal of Futures Markets, 2019, 39 (1), pp. 109 - 127
Issue Date:: 2019-01-01

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Field	Value	Language
dc.contributor.author	Cheng, B	en_US
dc.contributor.author	Nikitopoulos, CS	en_US
dc.contributor.author	Schlögl, E https://orcid.org/0000-0001-8898-6879	en_US
dc.date.issued	2019-01-01	en_US
dc.identifier.citation	Journal of Futures Markets, 2019, 39 (1), pp. 109 - 127	en_US
dc.identifier.issn	0270-7314	en_US
dc.identifier.uri	http://hdl.handle.net/10453/133640
dc.description.abstract	© 2018 Wiley Periodicals, Inc. We empirically assess hedging interest rate risk beyond the conventional delta, gamma, and vega hedges in long-dated crude oil options positions. Using factor hedging in a model featuring stochastic interest rates and stochastic volatility, interest rate hedges consistently provide an improvement beyond delta, gamma, and vega hedges. Under high interest rate volatility and/or when a rolling hedge is used, combining interest rate and delta hedging improves performance by up to four percentage points over the common hedges of gamma and/or vega. Thus, contrary to common practice, hedging interest rate risk should have priority over these “second-order” hedges.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP130103315
dc.relation.ispartof	Journal of Futures Markets	en_US
dc.relation.isbasedon	10.1002/fut.21954	en_US
dc.subject.classification	Finance	en_US
dc.title	Interest rate risk in long-dated commodity options positions: To hedge or not to hedge?	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	39	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
pubs.organisational-group	/University of Technology Sydney/Students
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	39	en_US

Abstract:

© 2018 Wiley Periodicals, Inc. We empirically assess hedging interest rate risk beyond the conventional delta, gamma, and vega hedges in long-dated crude oil options positions. Using factor hedging in a model featuring stochastic interest rates and stochastic volatility, interest rate hedges consistently provide an improvement beyond delta, gamma, and vega hedges. Under high interest rate volatility and/or when a rolling hedge is used, combining interest rate and delta hedging improves performance by up to four percentage points over the common hedges of gamma and/or vega. Thus, contrary to common practice, hedging interest rate risk should have priority over these “second-order” hedges.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/133640