The Applications Of Hedging Theory In Fuel Oil Futures

In recent years, the price of international crude oil keeps rising. To the fuel oilenterprises, the risk of price exposure becomes increasingly clear. Accordingly, thoseenterprises have to use their funds effectively and evade the risk by the means ofproduct hedging and financial hedging. As the starting point of production andoperation of fuel oil enterprises, hedging is not only one of the most importanteconomic activities but also a fundamental prerequisite of enterprises'development.Now that our country has just put out fuel oil futures and that we lack relativeresearch, this article may be helpful to the development of those fuel oil enterprises.The article introduces the idea and technology of hedging to the operationactivities of fuel oil enterprises. It involves the spot and futures market ofinternational crude oil, the spots and futures of domestic fuel oil, hedging knowledge,how domestic enterprises use hedging tools and the application models of hedging.The article also expounds how to apply the theory of hedging to the practice ofenterprise's operation. Then, it draws a series of feasible conclusion and suggestion.In the last part, it makes some case analysis and emphasizes the significance ofhedging. The article attempts to combine the advanced financial theory with theoperation environment of fuel oil enterprises and thus provides reference forpromoting the implementation and accuracy of hedging policy. The article includes 4parts.The first part specifically introduces the development of spot market and futuresmarket of international crude oil. In addition, this part has pointed out the problems,which need attention in application.The second part gives a brief introduction to the basic knowledge of fuel oil andmeanwhile makes a systemic analysis on fuel oil market of both home and abroad. Atlast, it tells the factors that may affect the price of fuel oil.The third part lays emphasis on the theory of hedging. Moreover, it shows howthose enterprises in industrial chains use futures contract of fuel oil to make hedging.Then, it introduces the regulations and flow of fuel oil contract and it's hedging ofShanghai Futures Exchange.The last part mainly disintegrates and discusses the application model of hedging.In addition, it points out how to use mathematical model to determine the optimumhedging proportion. In this part, the article also discusses the hedging model based onenterprise profit and researches the solution in loss condition. In the end, the articleanalyzes the case of MGRM to show the common existence of hedging in enterprises'operation. Hedging must be emphasized and rationally used. The part makes detailedanalysis on the factors that enterprises should pay attentions to and the significance ofhedging.