Rationalizing the relatively low levels of hedging observed in the oil market, compared to those predicted by pure risk minimization, has proven difficult. This article examines whether the objectives of oil producers can explain this discrepancy. From a theoretical perspective, it appears that the observed level of hedging is well explained by risk averse producers who also exhibit regret aversion towards potential losses in the derivatives market. When applying our models to the data, we find that regret effectively rationalizes producers' under-hedging and its persistence. Our results suggest that neither ambiguity surrounding basis risk, nor prospect theory can account for this behavior. Lastly, our findings indicate that relaxing the assumption of market completeness and considering quantity risk also fail to match the observed hedging activity of oil producers.

中文翻译：

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石油生产商的对冲需求：一个充满风险和遗憾的故事


事实证明，与纯粹的风险最小化所预测的对冲水平相比，对石油市场观察到的相对较低的对冲水平进行合理化已被证明是困难的。本文研究了石油生产商的目标是否可以解释这种差异。从理论角度来看，观察到的对冲水平似乎可以很好地解释规避风险的生产商，他们也对衍生品市场的潜在损失表现出遗憾的厌恶。当将我们的模型应用于数据时，我们发现遗憾有效地合理化了生产者的对冲不足及其持久性。我们的结果表明，围绕基础风险的模糊性和前景理论都无法解释这种行为。最后，我们的研究结果表明，放宽市场完整性的假设并考虑数量风险也与观察到的石油生产商的对冲活动不匹配。