Derivative as a Form of Insurance on Oil Price: A Case Study on British Airway

Wang, Hongfei (2007) Derivative as a Form of Insurance on Oil Price: A Case Study on British Airway. [Dissertation (University of Nottingham only)] (Unpublished)

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Over the past ten years, the increasing price of jet fuel is putting constant pressure on

the airline industry. Since the jet fuel cost is the second largest operating expenditure

in the airlines sector, even a small increase in the fuel price would lead a significant of

expenditure on the operating cost. This paper tends to exam the use of financial

derivatives to hedge against the adverse oil price change and it effectiveness. To

further illustrate this point, a case study of BA will be used and help to explain how

hedge works so that makes BA better off. In addition, it also highlights the incentives

behind the use of financial derivatives for risk management strategy by companies.

Furthermore, the comparative advantage of hedging strategy among other methods is

also discussed. Our research indicates that, by implementing financial derivatives, the

company's cash flow would be much more stable compare with leaving oil price

unhedged. Finally, this study provides the area for further research, which focuses on

the comparison of financial derivatives with other risk management strategy such as


Item Type: Dissertation (University of Nottingham only)
Keywords: Oil Hedging, Derivatives, BA
Depositing User: EP, Services
Date Deposited: 07 Mar 2008
Last Modified: 11 Sep 2016 17:46

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