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ASSET HEDGING PROGRAMS
Asset related hedging decisions are among the most important - and
contentious - issues facing managers at many firms. A structured
process for evaluating various hedging alternatives can help streamline
this process.
We work with managers and operating personnel to develop a customized
model of the un-hedged or "natural" asset position. This
model provides a framework for the objective evaluation of different
hedging strategies for a variety of factors - market risk, liquidity,
regulatory implications, credit risk, as well as operational constraints.
Our approach evaluates a range of potential hedging instruments
and alternative risk transfer mechanisms that can be used to produce
a more optimal risk profile.
| Sample Project - Refinery
Margin Hedging Program
Senior management at a petroleum refining company had established
what appeared to be reasonable operating objectives: minimize
crude oil acquisition costs, while maximizing earning from
products sales.
However, the groups responsible for executing these strategies
operated independently from one another, resulting in large
risk positions and extreme volatility in profitability
By integrating the two functions and focusing on the firm's
actual risk - processing margins - the refiner was able to
significantly smooth the volatility of its cash flows.
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For more information, please contact us at services@blackswanrisk.com.
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