Eliminate oil price risk generated by delivery agreement

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Reference no: EM131050331

European options to buy oil in one year at a price of $50 per barrel have a forward delta of 0.1. Assume BigOil Inc. is obligated to deliver 1.25 million barrels of crude oil one year from now at a fixed price of $45 dollars per barrel. How many of these options should BigOil Inc. purchase to eliminate oil price risk generated by the delivery agreement? Explain. As oil prices change the forward delta would change. Explain the effect on the hedging strategy.

Reference no: EM131050331

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Eliminate oil price risk generated by delivery agreement : European options to buy oil in one year at a price of $50 per barrel have a forward delta of 0.1. Assume BigOil Inc. is obligated to deliver 1.25 million barrels of crude oil one year from now at a fixed price of $45 dollars per barrel. How many of t..

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