Cross-hedging aviation fuel price exposures with commodity futures: Evidence from the Indian aviation industry

摘要

This paper analyses the performance of commodity cross-hedging of aviation turbine fuel (ATF) price exposures with crude oil and Brent oil futures for the Indian aviation industry. Models that were estimated using three alternative techniques of ordinary least squares (OLS), error correction models (ECMs), and autoregressive conditional heteroskedastic (ARCH) showed that Brent crude oil futures had the highest cross-hedging efficiency. Further, the variances of the profit and loss (P&L) series and value at risk (VAR) associated with alternative hedging strategies – including a composite hedge of crude oil and Brent oil futures – showed that although hedging is redundant for domestic operations, composite hedging for imported ATF prices could substantially lower the VAR compared to all other alternatives from imported and domestic operations.