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Authors: António Quintino 1 ; João Carlos Lourenço 2 and Margarida Catalão-Lopes 2

Affiliations: 1 Universidade de Lisboa and Galp Energia, Portugal ; 2 Universidade de Lisboa, Portugal

Keyword(s): Portfolio Hedging, Risk Tolerance, Multi-criteria Decision Analysis.

Related Ontology Subjects/Areas/Topics: Applications ; Decision Analysis ; Management Sciences ; Methodologies and Technologies ; Operational Research ; Risk Management ; Software Engineering ; Software Project Management

Abstract: Oil and gas companies’ earnings are heavily affected by fuels price fluctuations. The use of hedging tactics independently by each of their business units (e.g. crude oil production, oil refining and natural gas) is widespread to diminish their exposure to prices volatility. How much should be hedged and which derivatives should be selected according to the company risk profile are the main questions this paper intends to answer. The present research formulates an oil and gas company’s integrated earnings structure and evaluates the company’s risk tolerance with four approaches: Howard’s, Delquie’s, CAPM and a risk assessment questionnaire. Stochastic optimization and Monte Carlo simulation with a Copula-GARCH modelling of crude oil, distillates and natural gas prices is used to find the derivatives portfolios according to company risk tolerance hypothesis. The hedging results are then evaluated with a multi-criteria model built in accordance with the expressed company’s representati ves preferences upon four criteria: payout exposure; downside gains; upside gains; and risk premium. The multi-criteria analysis revealed a decisive role in the final hedging decision. (More)

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Paper citation in several formats:
Quintino, A.; Lourenço, J. and Catalão-Lopes, M. (2014). Managing Price Risk for an Oil and Gas Company. In Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - ICORES; ISBN 978-989-758-017-8; ISSN 2184-4372, SciTePress, pages 127-138. DOI: 10.5220/0004856901270138

@conference{icores14,
author={António Quintino. and João Carlos Louren\c{C}o. and Margarida Catalão{-}Lopes.},
title={Managing Price Risk for an Oil and Gas Company},
booktitle={Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - ICORES},
year={2014},
pages={127-138},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0004856901270138},
isbn={978-989-758-017-8},
issn={2184-4372},
}

TY - CONF

JO - Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - ICORES
TI - Managing Price Risk for an Oil and Gas Company
SN - 978-989-758-017-8
IS - 2184-4372
AU - Quintino, A.
AU - Lourenço, J.
AU - Catalão-Lopes, M.
PY - 2014
SP - 127
EP - 138
DO - 10.5220/0004856901270138
PB - SciTePress

- Science and Technology Publications, Lda.
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