Fuel hedging and risk management strategies for airlines, shippers and other consumers

Includes bibliographical references and index.

"A foundational guide to navigating the new fuel markets Fuel Hedging and Risk Management: Strategies for Airlines, Shippers and Other Consumersprovides a clear and practical understanding of commodity price dynamics, key fuel hedging techniques, and risk management strategies for the corporate fuel consumer. It covers the commodity markets and derivative instruments in a manner accessible to corporate treasurers, financial officers, risk managers, commodity traders, structurers, as well as quantitative professionals dealing in the energy markets. With the regime changes and elevated volatility observed in commodity prices over the last decade, fuel consumers are increasingly vulnerable to price shocks. The airline and shipping industries in particular have seen major structural and operational changes, with financial risk management superseding operational management in determining profitability. This book aims to present practical hedging solutions for managing fuel price risks while developing a holistic understanding of the risk management process, starting from hedge programme development and derivative structuring to financing, risk measurement and credit exposure management. The book includes a wide variety of key topics, including a discussion of commodities and derivatives markets, financial risk analysis of commodity consumers, hedge programme design and implementation, vanilla hedging, and exotic hedging products. Advanced topics covered include commodity price and volatility models, the impact of model choice on exotic derivatives pricing and risk management, as well as credit risk in commodity derivatives transactions and associated CVA costs. The book is unique in providing intuitive guidance on understanding forward curve dynamics and volatility term structure evolution for commodities. It also helps link hedging-related decisions to the financing strategy of a firm, offering integrated solutions that exploit synergies available through bundling. Fully up-to-date and relevant, this useful guide gives you the information you need to successfully deal with volatile fuel prices. The book illustrates the use of derivatives in real-world situations to manage commodity price risk with the help of term-sheets, payoff profiles, and scenario analysis. Comprehensive case studies illustrate the hedging process from conception to execution and monitoring of hedges in diverse situations, including hedge-portfolio restructuring and bundled financing, and hedging. Readers of this book can expect to: Develop a good understanding of fuel markets, derivatives market conventions, and popular hedge structures. Gain expert insight into all aspects of fuel hedging, price and volatility drivers, and dynamics Learn how to navigate energy prices and guard against volatility by employing effective risk management techniques Manage credit risk associated with commodity derivatives by understanding credit risk calculations, exposure optimization techniques, credit charges, such as CVA, DVA etc"--

"The book focuses on fuel hedging techniques, related commodity hedging techniques and relevant risk management solutions. It covers a wide variety of key topics including derivatives and related instruments, exotic hedging products and leverage, the relationship between creditworthiness and commodity hedging, hedge accounting, CVA/DVA costs, CSA and cash management constraints for fuel consumers, exposure management techniques, etc. All risk management strategies and hedging products are analyzed in light of the extreme scenarios experienced during 2008-09, when some fuel hedgers suffered big losses on their derivatives positions and paid a dire price in terms of competitiveness"--