Jet Fuel Hedging Strategies for the Department of Defense Through Use of Financial Derivatives

Abstract

The primary purpose of this research is to assess the practicality of utilizing some of the financial derivative products available on the market today in an effort to mitigate monetary losses due to the increasing price of jet fuel, thereby increasing stability in the DOD budget. The scope of this research will focus on the use of futures and call option contracts. Domestic jet fuel expenditure data was collected for Fiscal Years 1996 to 2007 and cross-referenced with the contract process of the previously mentioned financial hedging instruments during the same period of time. Results from the ex post facto analysis indicate that hedging with either heating oil futures or heating oil call options would have provided a tremendous overall savings to the DOD. Currently the DOD does not hedge its budget against fluctuation in the jet fuel spot market. The implication from this study is that the DOD should consider hedging its jet fuel exposure with either derivative, in particular call options as it is tailored for risk adverse customers.

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Document Details

Document Type
Technical Report
Publication Date
Mar 01, 2009
Accession Number
ADA499097

Entities

People

  • William T. Gibson

Organizations

  • Air Force Institute of Technology

Tags

Communities of Interest

  • Weapons Technologies

DTIC Thesaurus Topics

  • Air Force
  • Aviation Fuels
  • Commerce
  • Contracts
  • Department Of Defense
  • Domestic
  • Financial Management
  • Fuel Consumption
  • Fuels
  • Governments
  • Investments
  • Jet Engine Fuels
  • Law
  • Money
  • Petroleum
  • Procurement
  • United States

Readers

  • Asian Economic Studies
  • Government Contracting/Procurement.
  • Life Cycle Cost Analysis