Saturday, April 20, 2024

FCStone Products/Services – Hedge Strategy Design | Price Modeling

The volatility in energy prices exhibited over the past several years has forced companies to develop justifiable hedge programs that can withstand after-the-fact prudency reviews. Because of this potential second guessing, clients of FCStone have gravitated toward a more quantifiable hedging program based on protecting the “value” of a commodity for long periods of time. This more disciplined approach to triggering price protection has gained acceptance with many state regulators, as well as senior management.

Hedge Strategy Design
Many companies are faced with a vast array of financial instruments to protect against market risk. By working with FCStone’s staff of trading professionals, clients receive valuable insight and direction into how best to design a hedge strategy. Since one size does not fit all, FCStone customizes hedge plans to achieve client objectives. A hedge plan that includes historical valuation, predetermined time parameters, and a disciplined approach to the use of fixed price contracts, caps, floors and collars provides both the trader and senior management with a defendable game plan moving forward.

Price Modeling
Throughout our two decades in the commodity business, FCStone has based its view of price movements on a mean reversion methodology. Commodities are driven by supply/demand variables that will affect price over time. This distribution of price values establishes a matrix from which clients can develop hedge programs to capture “value” or protect against adverse price movements. By building a hedge program with this methodology, FCStone clients are able to justify hedge decisions not only at the point of execution, but also during the inevitable after-the-fact reviews.