Strategy using crude oil futures to hedge jet fuel prices

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Reference no: EM131559314

Singapore Airlines hedges its jet fuel requirement. There are no derivative securities on jet fuel traded in exchanges. Thus, SIA has two alternatives to hed ge jet fuel requirement.

- Trade crude oil futures that has a correlation of 0.92 with jet fuel price changes.

- Trade jet fuel swap with a counterparty in over-the-counter market.

(a) Evaluate the strategy using crude oil futures to hedge jet fuel prices.

(b) Demonstrate how SIA could use jet fuel swap to hedge jet fuel prices.

Reference no: EM131559314

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