Spot contract

About: Spot contract is a research topic. Over the lifetime, 3437 publications have been published within this topic receiving 91599 citations.

Stochastic Modeling of Wind Derivatives in Energy Markets

Abstract: We model the logarithm of the spot price of electricity with a normal inverse Gaussian (NIG) process and the wind speed and wind power production with two Ornstein–Uhlenbeck processes. In order to reproduce the correlation between the spot price and the wind power production, namely between a pure jump process and a continuous path process, respectively, we replace the small jumps of the NIG process by a Brownian term. We then apply our models to two different problems: first, to study from the stochastic point of view the income from a wind power plant, as the expected value of the product between the electricity spot price and the amount of energy produced; then, to construct and price a European put-type quanto option in the wind energy markets that allows the buyer to hedge against low prices and low wind power production in the plant. Calibration of the proposed models and related price formulas is also provided, according to specific datasets.

What Explains Risk Premia in Crude Oil Futures

Abstract: This paper studies the existence of risk premiums in crude oil futures prices with simple regression and Bayesian vector autoregressive models. It also studies the importance of three main risk premiums models in explaining and forecasting the risk premiums in practice. While the existence of the premiums and the validity of the models can be established at certain time points, it turns out that the choice of sample period has a considerable effect on the results. Hence, the risk premiums are highly time‐varying. The study also establishes a model, based on speculative positions in the futures markets, which has some predictive power for future oil spot prices.

Understanding the Tracking Errors of Commodity Leveraged ETFs

Abstract: Commodity exchange-traded funds (ETFs) are a significant part of the rapidly growing ETF market They have become popular in recent years as they provide investors access to a great variety of commodities, ranging from precious metals to building materials, and from oil and gas to agricultural products In this article, we analyze the tracking performance of commodity leveraged ETFs and discuss the associated trading strategies It is known that leveraged ETF returns typically deviate from their tracking target over longer holding horizons due to the so-called volatility decay This motivates us to construct a benchmark process that accounts for the volatility decay, and use it to examine the tracking performance of commodity leveraged ETFs From empirical data, we find that many commodity leveraged ETFs underperform significantly against the benchmark, and we quantify such a discrepancy via the novel idea of realized effective fee Finally, we consider a number of trading strategies and examine their performance by backtesting with historical price data