Principal Components Analysis for Correlated Curves and Seasonal Commodities: The Case of the Petroleum Market

Carlos Tolmasky, Dmitry Hindanov

Research output: Contribution to journalReview articlepeer-review

17 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1019-1035
Number of pages17
JournalJournal of Futures Markets
Volume22
Issue number11
DOIs
StatePublished - Nov 1 2002

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