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dc.contributor.authorVeld-Merkoulova, Yulia V-
dc.contributor.authorde, Roon Frans A-
dc.description.abstractThis study focuses on the problem of hedging longer-term commodity positions, which often arises when the maturity of actively traded futures contracts on this commodity is limited to a few months. In this case, using a rollover strategy results in a highs residual risk, which is related to the uncertain futures basis. We use a one-factor term structure model of futures convenience yields in order to construct a hedging strategy that minimizes both spot-price risk and rollover risk by using futures of two different maturities. The model is tested using three commodity futures: crude oil, orange juice, and lumber. In the out-of-sample test, the residual variance of the 24-month combined spot-futures positions is reduced by, respectively, 77%, 47%, and 84% compared to the variance of a naive hedging portfolio. Even after accounting for the higher trading volume necessary to maintain a two-contract hedge portfolio, this risk reduction outweighs the extra trading costs for the investor with an average risk aversion.en_UK
dc.publisherWiley-Blackwell for Wiley Periodicals-
dc.relationVeld-Merkoulova YV & de Roon FA (2003) Hedging long-term commodity risk, Journal of Futures Markets, 23 (2), pp. 109-133.-
dc.rightsThe publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.-
dc.subject.lcshCommodity control-
dc.titleHedging long-term commodity risken_UK
dc.typeJournal Articleen_UK
dc.rights.embargoreasonThe publisher does not allow this work to be made publicly available in this Repository therefore there is an embargo on the full text of the work.-
dc.citation.jtitleJournal of Futures Markets-
dc.type.statusPublisher version (final published refereed version)-
dc.contributor.affiliationAccounting and Finance-
dc.contributor.affiliationTilburg University-
Appears in Collections:Accounting and Finance Journal Articles

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