Hedging using put options for Brent crude oil contracts

Authors

  • زينة عبد السلام حسن قسم إدارة الأعمال، الكلية التقنية الإدارية / بغداد، الجامعة التقنية الوسطى، بغداد، العراق
  • شذى عبد الحسين جبر الجامعة التقنية الوسطى، بغداد، العراق

The research aims to measure the impact of using put options as a hedging tool to reduce losses resulting from fluctuations in crude oil prices, thru an analytical study on Brent crude contracts during the period from 2021 to 2024. The Black-Scholes model was used to price put options and estimate their theoretical value, with a comparison made between the realized returns in the presence and absence of hedging. The study relied on monthly data for futures contract prices as the execution price and spot prices, in addition to analyzing return variances and calculating the effectiveness of hedging using the variance reduction ratio as a quantitative tool. The results showed that the put option significantly contributed to reducing losses during periods of sharp price declines. Additionally, the return variance was reduced from (121.768) to (28.2781), indicating a notable improvement in the financial stability of oil sales. The effectiveness of the hedge reached (76.8%), a percentage that reflects the feasibility of this type of hedge in volatile market conditions. Accordingly, the research concluded that the put option is an effective tool in managing price risks, and its use is recommended within hedging strategies in oil markets, especially in light of sharp price fluctuations.

Keywords:

Put Option, Hedging against price risks, Fluctuations in crude oil prices, Black-Scholes Model, Hedging effectiveness

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Hedging using put options for Brent crude oil contracts. (2026). Journal Port Science Research, 9(1), 167-177. https://doi.org/10.36371/port.2026.1.11

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Hedging using put options for Brent crude oil contracts. (2026). Journal Port Science Research, 9(1), 167-177. https://doi.org/10.36371/port.2026.1.11