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Abstract

In this study stylized gasoline blender’s optimal hedging strategy in the presence of ethanol mandates is analyzed. In particular, the main objective of this study is to investigate whether the ability to purchase RINs and the presence of tax incentives would affect blenders’ optimal hedging strategies. Multicommodity hedging method with Lower Partial Moments hedging criterion as a measure of downside risk is utilized in obtaining the optimal hedge ratios. Based on the obtained results, the Renewable Identification Number purchases do not reduce risk, hence, is not a good risk management tool in the presence of blenders’ tax credits. However, in the absence of tax credit, RINs can be used as a risk management tool.

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