How to Optimize Hedging

Overview

Released on April 21, 2014, this whitepaper introduces a new Hedge Framework designed to be more robust and flexible than existing hedge models. It aims to help companies improve margins by reducing hedging costs without compromising on risk management practices.

Hedging in the oil refining business has always posed challenges, especially when managers face the dilemma of balancing better margins with effective risk management. This whitepaper presents a model that addresses the perennial problem of hedging by optimizing costs and mitigating risks. It explores the often overlooked indirect costs of hedging, such as the cost of lost upside and the opportunity cost of margin capital, which can collectively account for up to 10% of total costs.