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Case Derivatives Essay

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Below is an essay on "Case Derivatives" from Anti Essays, your source for research papers, essays, and term paper examples.

CASE ANALYSIS I

  1. First, fuel prices are volatile. Airlines cannot simply raise ticket prices to reflect changes in fuel costs because sometimes these changes are too great and could alienate customers. Also, air travel is a competitive industry so increasing ticket sales may drive business away. Southwest might want to hedge to reduce the risk of huge upswings in jet fuel prices. Because jet fuel derivatives are not very liquid, Southwest can hedge by using a correlated derivatives, such as crude oil and heating oil.
  2. a. Fuel currently makes up 36.3% of total costs for Southwest.
b. From 1994 to 2000 fuel made up, on average, 13.3% of total costs for Southwest. The percentage for 2013 was 36.3%, which is far greater. This percentage is about 2.7 times greater.
DATE | VALUE | CCROR |
2001-01-02 | 1283.27 | |
2001-01-03 | 1347.56 | -0.04888 |
2001-01-04 | 1333.34 | 0.010608 |
2001-01-05 | 1298.35 | 0.026593 |
2001-01-08 | 1295.86 | 0.00192 |
2001-01-09 | 1300.80 | -0.0038 |
2001-01-10 | 1313.27 | -0.00954 |
2001-01-11 | 1326.82 | -0.01026 |
2001-01-12 | 1318.32 | 0.006427 |
2001-01-16 | 1326.65 | -0.0063 |
2001-01-17 | 1329.47 | -0.00212 |
2001-01-18 | 1347.97 | -0.01382 |
2001-01-19 | 1342.54 | 0.004036 |
2001-01-22 | 1342.90 | -0.00027 |
2001-01-23 | 1360.40 | -0.01295 |
2001-01-24 | 1364.30 | -0.00286 |
2001-01-25 | 1357.51 | 0.004989 |
2001-01-26 | 1354.95 | 0.001888 |
2001-01-29 | 1364.17 | -0.00678 |
2001-01-30 | 1373.73 | -0.00698 |
2001-01-31 | 1366.01 | 0.005636 |
2001-02-01 | 1373.47 | -0.00545 |
2001-02-02 | 1349.47 | 0.017628 |
2001-02-05 | 1354.31 | -0.00358 |
2001-02-06 | 1352.26 | 0.001515 |
2001-02-07 | 1340.89 | 0.008444 |
| | |
Daily Volatility | | 1.353579 |
Annualized Volatility | | 21.40197 |
The daily (1.35%) and annual (21.40%) volatility of S&P500 are much lower than the daily (3.71%) and annual (58.7%) volatility of the Jet Fuel Prices.

  3. Scenario 1...

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Case Derivatives. Anti Essays. Retrieved November 20, 2017, from the World Wide Web: http://www.antiessays.com/free-essays/Case-Derivatives-554995.html