Manera, Matteo; Scarpa, Elisa - Fondazione ENI Enrico Mattei (FEEM) - 2006
In this paper we discuss a simple econometric strategy for pricing and hedging illiquid financial products, such as the Japanese crude oil cocktail (JCC) index, the most popular OTC energy derivative in Japan. First, we review the existing literature for computing optimal hedge ratios (OHR) and...