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22 votes
Accepted

Negative price of oil

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 ...
David Duarte's user avatar
  • 5,825
6 votes

Is forward price trendless under the real-world measure?

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 ...
Quantuple's user avatar
  • 14.7k
5 votes

How to de-seasonalize natural gas term structure data?

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 ...
ZRH's user avatar
  • 1,671
5 votes

Commodity Asian Swaps

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 ...
Dimitri Vulis's user avatar
4 votes

Which quantitative tools are actually used for hedging energy price and volume risk?

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 ...
Chet's user avatar
  • 237
4 votes
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How do you price an option on fresh corn?

Ideally, you should have a futures market, so you can hedge your option using the corresponding future. That is actually the right instrument to hedge and replicate, not physical corn picked in ...
Juan Ignacio Gil's user avatar
4 votes

Why do companies trade options?

You are asking when companies should hedge exposures, and when it’s better left to their stock investors. Here are a few factors that come to mind: A) transaction costs. It’s generally cheaper for ...
dm63's user avatar
  • 17.2k
3 votes

Interpretation of PCA for commodity futures

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 ...
rhaskett's user avatar
  • 1,641
3 votes
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How do energy companies measure the magnitude of the risks of buying energy at a variable price and selling it at a fixed price?

@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. ...
David Addison's user avatar
3 votes

Trading physical gold vs XAU

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 ...
Vikram Murthy's user avatar
3 votes

generating (or tracking) the DJUBS commodity index

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 ...
demully's user avatar
  • 5,071
3 votes

Commodity Asian Swaps

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 ...
ZRH's user avatar
  • 1,671
3 votes
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Why does the coffee price tracking index Dow Jones-UBS Coffee differ so much from the actual coffee price?

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 ...
demully's user avatar
  • 5,071
3 votes

Predicting natural gas prices using weather data

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 ...
Juan Ignacio Gil's user avatar
3 votes
Accepted

Value at Risk for portfolio with different maturities

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 ...
Attack68's user avatar
  • 10.5k
3 votes

Cross hedge: Which commodity to hedge when you have to hedge the jet fuel price but you have option between two commodities

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 ...
nbbo2's user avatar
  • 11.4k
3 votes
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What is the need of commodity swap if commodity forwards are available?

The commodity swap allows the farmer to enter into a series of forwards all at once: so one contract, instead of (say) five separate contracts. Also, the Swap strike will be (approximately) the ...
Jan Stuller's user avatar
  • 6,118
3 votes

How is the futures price set on days without trades?

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 ...
Chris Taylor's user avatar
  • 5,931
3 votes

How does the underlying get delivered for electricity market derivatives?

Electricity markets are term markets, ie to specify delivery, one needs to define the reference period (year, quarter, month, week) and the capacity (MW in wholesale markets). To give an example, the ...
ZRH's user avatar
  • 1,671
3 votes

Samuelson Effect with Prices or Returns?

The Samuelson effect refers to returns volatility, and it's not something which holds universally. In commodities with seasonality, as gas or power, you often have more volatility in winter than in ...
Juan Ignacio Gil's user avatar
2 votes
Accepted

optimize gas storage schedule based on forward prices

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....
Ami44's user avatar
  • 828
2 votes

ICE oil Future Markers

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 ...
gavbrennan's user avatar
2 votes
Accepted

How to check if relationship between two variable changes over time?

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 ...
Eldioo's user avatar
  • 266
2 votes
Accepted

Do underlying assets have a no-arbitrage price?

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....
Unicorn's user avatar
  • 36
2 votes
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Physical commodity trading quantitative risk return model

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 (...
0xFEE1DEAD's user avatar
2 votes

How to calculate correlation between commodities with forward prices?

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 ...
cpage's user avatar
  • 64
2 votes
Accepted

How does an exchange guarantee both legs of a calendar spread are executed atomically to give a specific spread?

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 ...
nbbo2's user avatar
  • 11.4k
2 votes

Some questions of precious metal Futures

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 ...
PlantFox's user avatar
  • 111
2 votes
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Is there any open source library for commodities trading (pricing/risk managment)?

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 ...
Juan Ignacio Gil's user avatar
2 votes

Where can I find good resources to learn about Factor Investing in Commodities Market?

You can start with the article by CME Group on "Benchmarking Commodities". Other than that I'd suggest you read up on specific factors prevelant in commodities like value and momentum (given in "Value ...
Dhruv Mahajan's user avatar

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