The Use And Impact Of The Futures And Option Hedging In The Aviation Enterprise Research

As a tool to be against price fluctuations, hedging is an effective means to manage the risk of enterprises. If hedging can be used reasonably by the enterprises, it can stabilize the cost and reduce the loss caused by price fluctuation. But in 2008, most of the airlines in China faced huge losses in the aviation hedging. It showed the fact that many problems exist in the use of the financial derivatives to hedge. Owing to the identical fluctuation of spot prices and future prices, futures plays the main role in traditional hedging. But huge losses of hedging in the airlines are caused not only by the futures, but also by the options and other financial derivatives. Instead of following the principle of hedging, they speculated, which caused the huge losses. Based on the traditional theory of hedging, this paper analyzes from the following two aspects:one is the application of the futures and options in hedging, the other is the influence of the futures and options on the airlines. Regarding to the first aspect, the hedgers risk preference is used as the parameter and the hedgers utility maximization is used as the objective function, the hedging model of futures, options and futures and options combination are established respectively. The the expectation and variance of asset returns are also used as the returns and risk of the model and then the optimal hedging ratio is solved. In addition I analyze the relationship between the hedger's risk preferences and optimal hedging ratio. Regarding to the second aspect, the annual reports are used to analyze the successful case of the Southwest Airlines and the reasons of the huge loss of Air China. At last, this paper gives some suggestions to the airlines in the applications of aviation hedging.