# Hedging a Commodity-Linked Portfolio

The main part of the “**Commodities’ Products Project**“:../ has been developed by researches on the **hedging of a commodity-linked portfolio**. Lately, it appeared crucial to people coming from the academic or the financial industry to find hedging mechanisms. With the recent development in commodity markets, various authors have analyzed hedging strategies but mostly based on statistical results. However there is no generic analysis of commodity-linked portfolios. Various authors consider portfolios; their studies remain restricted to very particular data. Here we propose a general framework. The purpose is to provide a theoretical support to practical hedging operations. The value-added relies on the accurateness of hedging features starting with a well-established model. We use a benchmark reference: the one-factor future model by Clewlow and Strickland in 1999. In order to validate the approach, we performed practical tests. While working on the study of the hedging, we wrote a paper to be published. The work done so far has been approved by two conferences we will attend in April and May.

## The Team

The authors of the paper are:

**Charles Ouanounou**ouanounou.charles@gmail.com**Yves Rakotondratsimba**w_yrakoto@yahoo.com**Mickaël Sahnoun**sahnoun.mickael@gmail.com

Assisted for testing and debuging by:

**Maxime Biette****Claire Petitimbert**

From:
**ECE Paris Graduate School of Engineering**,
37 quai de Grenelle CS71520,
75 725 Paris 15, France

## Attended Conferences

## Files

Full paper:

- C. Ouanounou, Y. Rakotondratsimba, M. Sahnoun, “Hedging A Commodity-Linked Portfolio” 2012. [Online]. Available: http://biettemaxim.me/files/COPP/HedgingACommodityLinkedPortefolio.pdf

Matlab source code:

## Abstract

**Keywords**: commodity derivatives, sensitivities, hedging, one factor model

**Related works**: [6], [7] and [8].

**JEL Classification**: G11, G13.

### References

- C. Alexander, M. Prokopczuck, and A. Sumawong, “The (de)merits of minimum variance hedging: application to the crack spread.” January 2012. [Online]. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1986047
- O. Korn, “The drift matters: an analysis of commodity futures and options.” May 2002. [Online]. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=315680
- D. Lautier and A. G. Galli, “Dynamic hedging strategies: an application to the crude oil market.” March 2010. [Online]. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1568019
- C. D. V. de Goyet, “The performance of the a0(n) diffusion model to hedge a forward commitment in the corn market.” October 2007. [Online]. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1085193
- L. Clewlow and C. Strickland, “Valuing energy options in a one factor model fitted to forward prices.” April 1999. [Online]. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=160608
- Y. Rakotondratsimba, “Effect of the asset change on the portfolio return in presence of transaction costs.”
- H. Kocherlakota, E. Rosenbloom, and W. Shiu, “Cash-flow matching and linear programming duality” pp. 283-296, 1990.
- H. Jaffal, A. Yassine, and Y. Rakotondratsimba, “Enhancement of the bond portfolio immunization under a parallel shift of the yield curve,” 2012.