# Tag Info

## Hot answers tagged commodities

9

Yes Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes Strategic Asset Allocation and Commodities The Case for Commodities An Asset Class for All Seasons: The Benefits of a Strategic Allocation to Commodities No Should Investors Include Commodities in Their Portfolios After All? New Evidence My Take Although there ...

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That's a complicated subject. Unless you're on the trading desk of a power/chemical/refinery company, you probably won't find much information. In addition, if your company doesn't have the "marginal" (best) equipment, such that you compete on efficiency/price, you'll only watch from the sidelines. Here's a previous discussion: http://www.wilmott.com/...

4

The common approach to temperature derivatives in their first run of popularity (in the late 1990's) was to use an Ornstein-Uhlenbeck process to describe deviations of temperature from a seasonal average. So far as I know, no major innovations have arisen since then. Calibrating such a model is very simple, and so is valuing certain quantities such as ...

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My answer is to go with option 2, but go long the long-dated contracts. Looking at the forward curve for WTI crude, one can buy crude, say, for 5 years out at $83 per barrel. Not only you can avoid the monthly rolls, you can take advantage of the current medium-term/long-term backwardation in crude. 3 Though not exactly spelling out models for natural gas. For natural gas trading I like the book as it explains a lot about how the industry works, and might help you develop models: Trading Natural Gas: Cash, Futures, Options and Swaps Hardcover – January 1, 1997 by Fletcher J. Sturm 3 If I may share some wisdom that was passed to me and that I insisted I test empirically and through painful lessons learned to take seriously and trust in: There is nothing that is guaranteed in life (aside us all having to die). You already sound like you made up your mind on the long side of the oil trade. Have you considered that not the demand for oil ... 3 Very informative and balanced is: The Strategic and Tactical Value of Commodity Futures by Claude B. Erb, CFA, and Campbell R. Harvey One well-known scientifically based passive investment fund in Germany (ARERO) draws a ratio of 15% for commodities (60% world stocks and 25% bonds, rebalanced on a yearly basis) as a conclusion out of this - see the live ... 2 The controversy surrounding commodity futures flows from Gorton and Rouwenthorst (2004). The authors show an equal-weight portfolio of long positions in commodity futures provides a Sharpe ratio greater than the one earned by holding a cap-weighted portfolio of U.S. stocks (beginning in the 1950's through 2004 or so). In essence, why should holding a ... 2 A Heat Rate Option is a standard contract traded bi-laterally or on an exchange where the ratio between Electricity at an agreed location and Natural Gas at an agreed location is the strike price for an agreed quantity at an agreed expiration date. This allows holder the ability to manage the the cost of the Market Implied Heat Rate. For example if May ... 2 What about a total return swap on the price of oil? In general, search for things with a high correlation or cointegrated with oil and check what risks you would take on compared to physically holding oil and see how you can minimize them. For instance, in the oil stocks case, you could short equity futures to only take energy stock risk instead of general ... 2 Since all futures are linear instruments you can achieve a perfect hedge by going short or long into the same future depending on your position. If however there are no available futures you can use cross-hedging as explained by Hull (2007) i get an error bellow I'm not sure why so I'll put it in code format: > To answer your question the delta of ... 2 At first sight, I'd say it's ok. You'll have to let the constructor of your process class take the maturity time, so you can create different instances with different$T\$.

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I am a professor too and I did work with Siemens Corporate Technology which provides the quantitative technology for their copper and electricity trading (Siemens being one of the biggest players in this area in Europe). They are mainly using sophisticated neural networks. We also published a paper together, see my answer here: What types of neural networks ...

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I wouldn't say that there is a single industry standard. Also, I'm not sure you should try expressing all risks in a single number, or at least be aware of it's deficiencies. If you're interested in VaR, you could consider doing historical VaR for example (be sure to correct for seasonality effects and the curve rolling down with the passage of time). One ...

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"Trading a ratio" is called statistical arbitrage or pairs trading. The key here is "cointegration" between two series, i.e. even if 2 series may be non-stationary, their linear combination is. To check statistically if 2 series are cointegrated you may try Dickey-Fuller test. That was theory. Practically speaking, from the plot you presented 2 series do ...

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The real world scenario you are describing as far as I understand it is a trader writing an OTC call option. His price has to reflect the current and expected future price/movement/volatility of the underlying, namely the commodity future. Lets first assume that the likely buyer of that option is interested in a a) ATM/ITM option or at least not too OTM, ...

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My guess is that you may have different seasonalities in the data as per each agricultural commodity characteristics. My guess is that there may be seasonality within the year as per the specific commodity depending if one or more harvestings occur a year. Also due to the specific unceirtanty due to planting, growth season and harvesting times. In addition ...

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Because exchanges believe there is enough demand for market participants to generate meaningful profits for them.

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The daily mark-to-market reduces the counterparty risk by making sure every day that the counterparties can pay for their losses. For a forward contract, on the other hand, there is no daily mark-to-market and one simply have to trust that the counterparty can pay up (or deliver/take delivery of goods) at settlement. Lets consider the Farmer. Yes, his price ...

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Keyword SPAN and the summarized answer is that it sets margin requirements as a function of risk/volatility. CME and other exchanges also function as clearers and thus they have an interest that market participants who clear with CME remain solvent. The exchange runs stress tests and determines a reasonable amount of performance bond that has to be deposited ...

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I don't have a huge amount of market experience, but I have traded heat rate options at a merchant generation company and at an investment bank. First off, I disagree Sid Jacobson's answer. Or at least I have never seen a contract with those settlement terms trade. Those terms are, for a heat rate call, eg, final settlement: C = P/G - K, which = P/G - HR, ...

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In the formulation of your hypotheses you had to assume that this is relevant news to the market with an imidiate effect on prices and volatilities, in other words that a rating action leads to a structural break, not the other way round (that a structural break leads to rating action). The problem in testing will probably be a too small sample within this ...

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Hedging is hedging, it's more related to the market you're trading on than to what your goals are or whether you are a bank or an industrial corporation. Granted, some institutions may be able to trade things others cannot, but in principle the same models will aply if your position in the market is the same (i.e. most financial models used for hedging ...

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