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  3. an oil production company extracts and ships 4,000

An oil production company extracts and ships 4,000 barrels of oil every day. Each barrel...

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Accounting

An oil production company extracts and ships 4,000 barrels of oil every day. Each barrel of oil costs $50 and takes one month to reach the market. Its profit model is expressed by (ST)=4000.ST-200,000.
The interest rate is 6%. Having the following information, how can they hedge the volatility using derivative contracts? Discuss ALL possible solutions.
r=6%;T=1m=112;
Forward: F0,112=95
Put option: K=90,P(90,112)=4.975
Call Option: K=100,C(100,112)=5.345
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