Volatility in Crude Oil Markets: Trading and Risk Management

The most important crude oil grades (Brent and WTI) are quite volatile so all market players, from financials to producers, have to hedge themselves against unwanted market risk. Hedging is always tricky and often done with financial derivatives such as options, futures and swaps. This particular quantitative research adopts the implied volatility extracted from Average Price Options (APOs) traded on both Brent and WTI’s over-the-counter markets and it shows how it can be used to build a solid hedging strategy. In particular, this quantitative research ,that was published on the J.P. Morgan Center for Commodities’ Global Commodities Applied Research Digest, focuses on the importance of the volatility leverage effect. Please click here to read it.

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