Styring af markedsrisiko for det Norske Oljeselskap

Tor Holager Rødde & Bjørnar Høyland

Student thesis: Master thesis


This master thesis studies Det Norske Oljeselskaps ASA’s need for a risk management tool to deal with market risk and investigates the characteristics of the company’s different market risk exposures and the option to alter the risk exposures through the use of financial derivatives. Throughout the master thesis a management tool which identifies, quantifies and manages the company’s exposure to market risk was created. The purpose of the tool is to enhance the foundation of which the management takes decisions on whether to keep, reduce or eliminate market risk. In contrast to the conclusions of classic capital market theory, imperfections in real world capital markets create a rationale for lowering the volatility of cash flows through hedging. A company is not in control of fluctuations in the market rates, and these fluctuations can exercise significant impact on the company’s cash flows. In the analysis of Det Norske Oljeselskap both a strategic and economic rationale for implementing a financial risk management tool were identified. By using the CorporateMetrics framework as methodology for creating a risk management tool, a complete analysis of the market risk is conducted, taking into account a full range of probability-weighted market outcomes as well as the integration of the identified market risks across different markets – commodities, foreign exchange and interest rates. Through the use of parametric modelling and Monte Carlo simulation, a model that quantifies Det Norske Oljeselskaps exposure to market risk over the next three months was created and validated. The company’s total exposure is communicated through one single risk measure, Cash Flow at Risk. To clarify the management’s options to manage the quantified market risk, twentyfive possible hedging strategies using financial derivatives were investigated, and an analysis of expected return for different risk levels was conducted. On the basis of this analysis Det Norske Oljeselskap can now assess the different risk levels and make efficient use of their risk taking capacity.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2008
Number of pages171