Spot contract

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

Determinants of oil futures prices and convenience yields

Abstract: Commodity futures prices are usually modelled using affine term structure spot price models with latent factors extracted from the data. However, very little research to date has considered the question – What are the economic drivers behind the calibrated latent factors? This paper addresses this question in the context of a three-factor – short-, medium- and long-term – model for crude oil spot prices by studying the relations between these factors and appropriate economic variables. An affine combination of the short- and medium-term factors is identified as the (instantaneous) convenience yield. Estimating a structural vector auto-regression model we find that the short-term factor mainly relates to demand variables in the physical markets and to trading variables in the futures markets (such as the net short position of commercial hedgers), the medium-term factor relates to business cycles, demand and trading variables, and the long-term factor relates mainly to financial factors.

Pricing expropriation risk in natural resource contracts – A real options approach

Abstract: We develop a model for pricing expropriation risk in natural resource projects, in particular an oil field. The government is viewed as holding an American-style option to expropriate the oil field, but facing the following three possible expropriation costs: A state-run company may produce oil less cost-efficiently than a private firm,the government may have to pay a compensation to the firm, and an expropriation may trigger lower investor confidence negatively affecting the overall economy. The dynamics of key variables – the spot price, futures prices and volatility – is described by a model proposed and estimated in Trolle and Schwartz (2007). For reasonable parameter values and under market conditions not too different from what has been seen in recent years, the value of the expropriation option can be substantial

Pricing Energy, Weather and Emission Derivatives under Future Information

Abstract: The aim of this thesis mainly consists in the computation of risk-neutral option prices for energy, weather, emission and commodity derivatives, whereas we innovatively take future information – which we assume to be available to well-informed market insiders – into account via several customized enlargements of the underlying information filtrations. In this regard, we inter alia derive European as well as exotic option price formulas for electricity derivatives such as traded at the European Energy Exchange EEX, for example, but yet under the incorporation of forward-looking information about possible future electricity spot price behavior. Furthermore, we provide both utility-maximizing anticipating portfolio selection procedures and optimal liquidation strategies for electricity futures portfolios yielding minimal expected trading costs under forward-looking price impact considerations. Moreover, we correlate electricity spot prices with outdoor temperature and treat a related electricity derivatives pricing problem even under additional temperature forecasts. In this insider trading context, we also derive explicit expressions for different types of temperature futures indices such as usually traded at the Chicago Mercantile Exchange CME, for instance, and provide various pricing formulas for options written on the latter. Additionally, we construct optimal positions in a temperature futures portfolio under forecasted weather information in order to hedge against both temporal and spatial temperature risk adequately. Further on, we treat the pricing of carbon emission allowances, such as commonly traded in the European Union Emission Trading Scheme EU ETS, but under supplementary insider information on the future market zone net position. In this context, we propose two improved arithmetic multi-state approaches to model the ‘length of the market net position’ more realistically than in existing models. By the way, throughout this work we frequently discuss customized martingale compensators under enlarged filtrations and related information premia associated to our specific insider trading frameworks. Finally, we invent nonlinear double-jump stochastic filtering techniques for generalized Levy-type processes in order to (theoretically) calibrate the emerging incomplete market models.