THESIS
2015
Abstract
Fuel cost is the most significant cost for fuel-consuming industry, for instance, airlines and ocean
shipping companies. However, the world oil price is highly volatile, which motivates the shipping
industry to consider fuel hedging derivatives to reduce their fuel price exposure. We simplify
the fuel hedging derivatives to be just getting a fixed oil price, and based on this we build models
for single firm and multiple firms respectively to study about the firms’ hedging decision: the
single-firm models mainly focus on each single firm’s decision since the shipping industry is homogeneous,
while the multiple-firm models consider more about competition. In our most important
two-stage models (for both single firm and multiple firms), we joint the production decision and
the fina...[
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Fuel cost is the most significant cost for fuel-consuming industry, for instance, airlines and ocean
shipping companies. However, the world oil price is highly volatile, which motivates the shipping
industry to consider fuel hedging derivatives to reduce their fuel price exposure. We simplify
the fuel hedging derivatives to be just getting a fixed oil price, and based on this we build models
for single firm and multiple firms respectively to study about the firms’ hedging decision: the
single-firm models mainly focus on each single firm’s decision since the shipping industry is homogeneous,
while the multiple-firm models consider more about competition. In our most important
two-stage models (for both single firm and multiple firms), we joint the production decision and
the financial decision—fuel hedging. The firms decide their hedging proportion in the first stage,
i.e., part of their fuel will be bought at a hedged price and others from spot oil market at an uncertain
future price. The production decision will be made in the second stage with both oil price
and hedging decision realized. By using the backward approach, we solve the optimization problems
for both stages and find that fuel hedging intensifies market competition when fuel price rises
up, thus the Nash Equilibrium shows not all the firms will hedge their fuel cost even though they
expect the future fuel price to increase, which is against our intuition.
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