Possible Effects of the Department of Defense Acting as a Buyer on the Derivatives Futures Market

摘要

The purpose of our professional project is to research the possible effects of the Department of Defense's (DoD) participation as a buyer in the commercial futures market for derivatives. The idea that DoD should participate in derivatives trading has been proposed and published by others in the past; however, the recommendations we reviewed failed to provide empirical evidence to highlight likely outcomes if their recommendations were put into practice. With this project, we research the likely effects that DoD purchases of oil on the commercial futures market would have on the market price. Additionally, we research to determine how substantial DoD savings or losses could be from practicing a hedging program. We take a mostly quantitative approach to investigate our questions, then integrate qualitative analysis to support our final conclusions and recommendations. The goal of this project is to achieve federal government recognition and consideration of our findings. We believe that hedging against the rising costs of fossil fuels in the commercial futures market is a terrific, low-risk action that DoD could practice in fuel procurement.