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The negative price that was all over the news was the front contract for WTI (West Texas Intermediate) futures that went to -40 and had a last trade date of 21.04.2020, so today. This movement was connected to derivatives and among other explanations was the fact that traders were exiting positions in order to avoid the risk of taking delivery of physical ...

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Definitions For fixed $T$ and moving $t \leq T$ then by definition $\color{blue}{(*)}$, forward prices $F(t,T)$ and future prices $\text{Fut}(t,T)$ are both conditional expectations. However, these expectations are not taken under the same probability measure. More specifically:  F(t,T) = \Bbb{E}^{\Bbb{Q}^T}\left[ \left. S_T \right\vert \mathcal{F}_t \...

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As a starting point to this, determining seasonality for a given market is as follows: i) Take several years of historical spot price time series, e.g. TTF spot prices. For year $i$ work out a yearly price $p_{yr,i}$ by taking the arithmetic average of daily spot prices. Do the same in respect of month number $j$ of the same year to get a monthly price $p_{... 4 Just came across this thread...not sure if you already have your answer, but thought I'd give you a shout. In the energy business, we employ a range of models. You'll find the most sophisticated models on the Pricing desks, Risk Management desks and the Options trading desks. A variety of products are traded - futures, forwards and swaps. For options - in ... 4 I am a professor too and I did work with Siemens Corporate Technology which provides the quantitative technology for their copper and electricity trading (Siemens being one of the biggest players in this area in Europe). They are mainly using sophisticated neural networks. We also published a paper together, see my answer here: What types of neural networks ... 4 Though not exactly spelling out models for natural gas. For natural gas trading I like the book as it explains a lot about how the industry works, and might help you develop models: Trading Natural Gas: Cash, Futures, Options and Swaps Hardcover – January 1, 1997 by Fletcher J. Sturm 4 In an Asian-style swap, instead of using the last price quote of the underlying (such as commodity price), they take an average, such as the average closing price over the last month. This is fairly common in commodity swaps. As for pricing, a good start is this paper on pricing Asian-style interest rate swaps (where the floating leg uses the average of an ... 3 cash settled ..XAU/USD is nothing but the spot price of gold quoted in dollars. The main difference between physical forwards and xau would be the end users. Think of big jewelry chains that need to lock in the price to keep their input costs low while the latter would be used by speculators (at the very least). Hence no different from a SnP futures. But the ... 3 At first sight, I'd say it's ok. You'll have to let the constructor of your process class take the maturity time, so you can create different instances with different$T$. 3 As it happens, I, in a past life, was part of the team that created the UBS-CMCI commodity indices... Your problem will (probably) lie in mismatch between the methodology of monthly rolls a la the index's rolling methodology and the rolls on Bloomberg's generic front-vs-second month contracts. Most of the time, these will neatly equate. But every now and ... 3 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, ... 3 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 ... 3 @Noob2’s comment above is “spot” on. Across the natural resource and energy value chains there are significant price risks that: A. Market prices will fall below price takers’ unit costs; and, B. Market prices will exceed price setters’ unit prices. In either case, if you assume that log price changes are a martingale, and that expected profit is the ... 3 Just my 2cts' worth: With commodity swaps exchanging typically a daily spot price (i,e, immediate delivery price) vs a fixed rate payable in regular intervals, the only difference to a truly Asian product is that discount factors are not perfectly equal to unity. So while rates are not high or tenors very long, regular commodity swaps would be pretty close ... 3 Your “coffee price” is spot. Your “coffee index” (or ETF) is excess/total returns, i.e. it includes index rolls. That is the impact of the contango or backwardation of coffee futures as they roll from one contract to the next. See: https://www.bloomberg.com/quote/BCOMSP:IND https://www.bloomberg.com/quote/BCOM:IND Commodity prices are down 10% in 5 ... 3 Natural gas prices and temperature are correlated, but there are other factors here: In the long term, the intrayear shape of gas prices is a function of temperature, but that curve is usually non tradable, so it's just theoretical at most. In the medium/short term, gas prices (as any other prices) are a function of supply and demand. Demand is often very ... 3 That is not the traditional representation of VaR. Normally, a VaR measure reflects the current risk exposure of the portfolio and measures its loss based on market movements, i.e. via an instantaneous shock to those positions, whether those market movements are supposed to reflect 1-day, 5-day, 50-day or 1-year, for example. Generally VaR does not account ... 3 The objective of hedging is to reduce the variance of the (position+hedge) portfolio. So which of these two solutions gives a smaller variance? You could calculate it numerically and compare the variances. However, in general ... the answer is going to be: whichever of commodity 1 or commodity 2 has higher correlation ($\rho\$) with jet fuel. The percent of ...

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There is a cascade of methods to choose a settlement price in futures markets - starting with trades in the relevant market, and going through trades in other expiries (plus spreads), quotes, quotes in spread markets, trades in related markets, previous day’s settlement prices etc. This answer to a related question may be helpful - https://quant....

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The exchange hopes that people will reference their new markers as the referenced price index in OTC derivative contracts or in physical supply contracts - the idea being that the marker provides an independent and fair assessment of the market at a point in the day relevant to the local market (2:30pm NYC time when ICE Brent settles is the middle of the ...

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If we assume that we have no variable storage cost, than the optimal strategy in the beginning seems to be to buy as much as possible in forward contracts for the month with the cheapest forward price. Assuming you can buy enough to get through the year you'll just sell what you have until you start the cycle again next year. The next day the forward prices ...

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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 a ...

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One way is to check their (linear) dependency with Pearson's correlation coefficient. If you rather want to check for sign dependency, you can use Spearman's correlation coefficient. You could for example take the yearly data, calculate the correlation coefficient between the two data sets for every year and then check, whether the coefficient changed ...

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Please see the papers below: Sebastián A. Rey, Non-Arbitrage Valuation of Equities. International Journal of Financial Markets and Derivatives (2015) vol. 4, no 3/4, p. 231-245 http://www.inderscienceonline.com/doi/abs/10.1504/IJFMD.2015.073472?mobileUi=0& Sebastián A. Rey, The Valuation of Equities and the GDP Growth Effect: A Global Empirical Study. ...

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Your question piqued my interest. While not specific to commodities, this looks like a good starting point for quantifying political risk: Practically, this means taking the following steps (according to Rigobon 2003): Step 1: Define the treatment group, or a set of “event” days on which the variance of the unobservable factor is high, such as the Italian ...

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So, the interpretation here is fairly straightforward but I don't think it is likely what you are looking for. Looking at the factors above I notice the returns for each future matter, but the month contract doesn't matter as much. You can see that in the first factor whereas the second factor you start to see some of the variation across different ...

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Drawing on “Time Series Momentum” (Moskowitz, Ooi and Pedersen, 2012), using return series from commodities futures is a perfectly valid way to compute the correlation between the contracts. The danger in this, however, is that you may be picking up effects driven by the peculiarities of the futures markets and not the underlying commodities. To address this,...

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You misunderstand the role of the exchange. The exchange does not guarantee anything. It only (1) Decided that spreads can be traded between willing counterparties (the exchange disseminates bid and ask and other information for spreads through its regular systems) and (2) The exchange provides a convention to ease the reporting of spread trades, the spread ...

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There is no interest rate associated with spot PMs. The reason why FX is evaluated in this way is because you can invest in short-term sovereigns (risk free rate) and get cash flow. So the FX rates are partially determined by the differentials between rates. PMs are quite different. If anything spot PMs are a negative yielding asset because of storage costs. ...

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Not that I know, and I'm in that business. Allegro is a ETRM provider, equivalent to Murex in the banking area, but, as far as I know, they don't provide any library outside their main system (which is not able to deal with any kind of exotic), and definitely nothing open source. Let me know if you find anything, because I would be glad to use it. Depending ...

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