Abstract

BARRERA-RIVERA, Roberto R.  and  VALENCIA-HERRERA, Humberto. Dynamic hedging of prices of Natural Gas in Mexico. Rev. mex. econ. finanz [online]. 2020, vol.15, n.3, pp.355-374.  Epub Feb 10, 2021. ISSN 2448-6795.  https://doi.org/10.21919/remef.v15i3.478.

The first-hand sale prices of Natural Gas (NG) in Mexico had a dynamic lagged relationship with international NG futures prices during the period of January 2012 to June 2017. Based on a hedging strategy which includes NG futures and using an MGARCH VCC model, conditional variances were estimated with 20 and 40 days of lag between the prices of NG Futures. Dynamic hedges of NG were calculated assuming theoretical futures prices of the US dollar in Mexican pesos. With the use of backtesting, it was found that the forecasts of optimal hedge ratios improve with short prediction periods and proximate observed data. The dynamic hedging model proposed can be extended to other fuel markets. The importance of hedging NG prices derives from the size of the market and the extent of the risks to which the market participants are exposed.

Keywords : Natural gas prices; first-hand sale prices; dynamic hedging; backtesting.