New article by Wallace and Gu
The article "Handling financial risks in crude oil imports: Taking into account crude oil prices as well as country and transportation risks" has been published in Transportation Research Part E: Logistics and Transportation Review.
Transportation Research Part E: Logistics and Transportation Review is on level 3 in the ABS Academic Journal Guide.
Wang, Shuang, Stein W. Wallace, Jing Lu and Yewen Gu: Handling financial risks in crude oil imports: Taking into account crude oil prices as well as country and transportation risks, Transportation Research Part E: Logistics and Transportation Review, 2020, 133, Online 28.12.2019.
Abstract
Financial risks related to crude oil imports are certainly affected by crude oil price uncertainty. Our question is: How important is it to take also physical risks, such as the crude oil exporters’ political risks and transportation risks into account when controlling financial risks in line with the importer’s risk attitude when planning crude oil imports and transportation at a tactical level?
In this paper, two-stage stochastic programming models are proposed to illustrate the problem, and a numerical test is conducted to better understand the effects of physical risks. The mechanism for controlling risk will be forward physical contracts.
The results show that the real financial risk is much higher than the importer might believe if physical risks are not considered. Unless the importer is risk neutral, more forward crude oil will be imported when physical risks are considered, and the distribution of forward crude oil will depend strongly on correlations among risks.