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Question 4 a) Construct a jet kerosene cross hedge against Heating oil, given the following data. Once the position has been taken out, determine the new position if the jet kerosene spot price rises by $0.55 per US gallon. [Note 1 contract "lot = 42,000 US gallons) Contract % change in Heating % change kerosene in jet Oil Mar-16 Apr-16 50.00% 20.000% May-16 33.33% 33.33 % Jun-16 25.00 % 25.00 % Jul-16 0.00 % 33.33% 14.29 % | 20.00% 16.67 % 14.29 % 12.50 % 11.11 % Aug-16 Sep-16 Oct-16 Nov-16 12.50% 11.11 % Standard Deviation in Styles 14.29 % Sep-16 Oct-16 14.29 % 12.50 % 11.11 % 12.50% Nov-16 11.11 % 12.33 % 15.00% Standard Deviation in Heating Oil Standard Deviation in Jet kerosene Correlation Coefficient Hedged Volume 79.4052 % 1,000,000 US gallons (15 marks) b) Given that you have bought a Call Option to purchase Brent Blend crude at a Strike Price of $49/bbl for a volume of 200,000 barrels. You have paid a premium of $2.50/bbl to the counterparty of the contract. During the month in which the option is exercisable, Brent Blend is trading at $52.46/bbl. Critically evaluate whether you would exercise your Call Option and make a valid judgement based on numerical calculations (10 marks) (Total: 25 marks) Question 4 a) Construct a jet kerosene cross hedge against Heating oil, given the following data. Once the position has been taken out, determine the new position if the jet kerosene spot price rises by $0.55 per US gallon. [Note 1 contract "lot = 42,000 US gallons) Contract % change in Heating % change kerosene in jet Oil Mar-16 Apr-16 50.00% 20.000% May-16 33.33% 33.33 % Jun-16 25.00 % 25.00 % Jul-16 0.00 % 33.33% 14.29 % | 20.00% 16.67 % 14.29 % 12.50 % 11.11 % Aug-16 Sep-16 Oct-16 Nov-16 12.50% 11.11 % Standard Deviation in Styles 14.29 % Sep-16 Oct-16 14.29 % 12.50 % 11.11 % 12.50% Nov-16 11.11 % 12.33 % 15.00% Standard Deviation in Heating Oil Standard Deviation in Jet kerosene Correlation Coefficient Hedged Volume 79.4052 % 1,000,000 US gallons (15 marks) b) Given that you have bought a Call Option to purchase Brent Blend crude at a Strike Price of $49/bbl for a volume of 200,000 barrels. You have paid a premium of $2.50/bbl to the counterparty of the contract. During the month in which the option is exercisable, Brent Blend is trading at $52.46/bbl. Critically evaluate whether you would exercise your Call Option and make a valid judgement based on numerical calculations (10 marks) (Total: 25 marks)

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