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Optimal portfolios in commodity futures markets

Listed author(s):
  • Fred Espen Benth
  • Jukka Lempa

We consider portfolio optimization in futures markets. We model the entire futures price curve at once as a solution of a stochastic partial differential equation. The agents objective is to maximize her utility from the final wealth when investing in futures contracts. We study a class of futures price curve models which admit a finite-dimensional realization. Using this, we recast the portfolio optimization problem as a finite-dimensional control problem and study its solvability.

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File URL: http://arxiv.org/pdf/1204.2667
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Paper provided by arXiv.org in its series Papers with number 1204.2667.

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Date of creation: Apr 2012
Handle: RePEc:arx:papers:1204.2667
Contact details of provider: Web page: http://arxiv.org/

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  1. Tomas BjÃrk & Andrea Gombani, 1999. "Minimal realizations of interest rate models," Finance and Stochastics, Springer, vol. 3(4), pages 413-432.
  2. Fred Espen Benth & Alvaro Cartea & Ruediger Kiesel, 2006. "Pricing Forward Contracts in Power Markets by the Certainty Equivalence Principle: Explaining the Sign of the Market Risk Premium," Birkbeck Working Papers in Economics and Finance 0611, Birkbeck, Department of Economics, Mathematics & Statistics.
  3. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
  4. Nathanael Ringer & Michael Tehranchi, 2006. "Optimal portfolio choice in the bond market," Finance and Stochastics, Springer, vol. 10(4), pages 553-573, December.
  5. Björk, Tomas & Landen, Camilla, 2000. "On the construction of finite dimensional realizations for nonlinear forward rate models," SSE/EFI Working Paper Series in Economics and Finance 420, Stockholm School of Economics.
  6. Björk, Tomas & Svensson, Lars, 1999. "On the Existence of Finite Dimensional Realizations for Nonlinear Forward Rate Models," SSE/EFI Working Paper Series in Economics and Finance 338, Stockholm School of Economics.
  7. Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-976, July.
  8. repec:dau:papers:123456789/6041 is not listed on IDEAS
  9. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December.
  10. Ivar Ekeland & Erik Taflin, 2003. "A theory of bond portfolios," Papers math/0301278, arXiv.org, revised May 2005.
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