Les cahiers du CREAD
Volume 39, Numéro 2, Pages 227-255
2023-06-22
Options Trading Strategies For The Price Coverage Of The Algerian Oil Barrel Sahara Blend
Authors : Haffar Adlane . Le Fur Eric . Djedaa Nour El-islam . Mehibel Samer .
Abstract
This paper focuses on the problem of hedging the risk of financial loss generated by the fall in the price of the Algerian oil barrel Sahara Blend, with the aim of proposing an approach allowing the reduction of financial losses, following unfavorable movements in oil prices. After a reminder on the strategic importance of the energy sector for the Algerian economy, we will evaluate the derivative products using different models. We present some option hedging strategies. Our results indicate that the use of options would effectively cushion a possible drop in the price of Sahara Blend, provided that the choice of the option exchange strategy is optimal. The study covers the period from 12/31/2019 to 06/30/2021, and the data is available on the websites www.oilprice.com and www. fred.stlouisfed.org. Finally, the results indicate that taking into account the cost of hedging and gains at maturity, bear spread and traddle strategies remain the most optimal.
Keywords
Binomial tree model ; Black & Scholes model ; Energy Derivatives ; Monte Carlo simulation ; Option trading strategy
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