How to build a fuel hedging model
This course is a How-To guide for applying Monte Carlo Simulation in building a fuel hedging model for the airline industry.
We first begin with an overview of the model context and back ground:
Next we look at the actual model building process, i.e. a step by step walkthrough of how the Monte Carlo simulator is built in EXCEL. As a first step crude oil prices are simulated:
After obtaining the path of prices the simulator is linked to the projected financial statements of the airline in order to obtain distributions for jet fuel expenses and operating margins. These distributions will aid in creating an effective hedging strategy for the airline: