Godbey, Jonathan M.; Hilliard, Jimmy E. - In: Quantitative Finance 7 (2007) 3, pp. 289-300
Absent liquidity in long-term futures or forward markets, firms use nearby contracts to hedge long-term commitments. To hedge commodities that exhibit stochastic convenience yield, adjustments to the naive stacked hedge are necessary. Simulated and empirical tests of the hedging model using oil,...