Hedging spot fuel oil in Singapore: Will the new SIMEX contract succeed? |
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Authors: | Warren Bailey Annie Koh |
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Institution: | (1) Faculty of Finance, Ohio State University, USA;(2) Department of Finance and Banking, National University of Singapore, Singapore |
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Abstract: | We assess SIMEX's new market for fuel oil futures by examining its effectiveness in hedging a cash fuel oil position in Singapore. We find that the SIMEX contract can eliminate about two-thirds of the volatility of a Singapore cash position and is many times more effective than a cross-hedge constructed with overseas contracts. Given its potential usefulness as a hedging tool for the regional petroleum industry, we anticipate that the new contract will be a success.We are grateful to Mobil (New York) for making the Platt oil price data available to us and to Jim Bovenage specifically for accessing the data for us. |
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