Principal components analysis for correlated curves and seasonal commodities: The case of the petroleum market
✍ Scribed by Carlos Tolmasky; Dmitry Hindanov
- Publisher
- John Wiley and Sons
- Year
- 2002
- Tongue
- English
- Weight
- 171 KB
- Volume
- 22
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
This article presents a family of term structure models that can be applied to value contingent claims in
multicommodity and seasonal markets. We apply the framework to the futures contracts on crude and heating oils
trading on NYMEX. We show how to deal with the problem of having to value products depending on the
“whole” market, such as spread options on contracts on a single commodity maturing at different
times (time‐spreads) or spread options on the added value of the products derived from the raw
commodity (crack spreads). Also, we show how to build term structure models for a commodity that
experiences seasonality, such as heating oil. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark
22:1019–1035, 2002