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TRADING ENERGY DERIVATIVES – MATH-GA_2800

Homework #1 – Long WTI and RBOB Futures Investment

Due Feb’6 (before 5pm)

DESCRIPTION

The objective is to learn how an investment in futures differs from investment in a physical commodity.

Implement two investment strategies and analyze their performance from Jan 1, 2010 until Dec 31, 2022:

1) Long 100 contracts of WTI futures

2) Long 100 contracts of RBOB futures

To approximate the performance of the physical asset, futures investments are held in the nearest maturity futures contract . To avoid the risks of the physical delivery, futures must be rolled to the second nearest maturity futures at the closing price on day , where is expiration of contract.

On the day of the roll, the position in contract is closed out, and the new position in contract is initiated. After the expiration of , contract shifts to become the new contract.

Transaction costs are $0.01/bbl for WTI and $0.0005/gal for RBOB.

FUTURES DATA (from EIA):

https://www.eia.gov/dnav/pet/pet_pri_fut_s1_d.htm

(RBOB data for 12/30/2011 – add missing price 2.686).

The data is reported by nearby maturity as .

EXPIRATION CALENDAR (from CME):

For WTI: Trading terminates 3 business day prior to the 25th calendar day of the month prior to the contract month. If the 25th calendar day is not a business day, trading terminates 4 business days prior to the 25th calendar day of the month prior to the contract month.

For RBOB: Trading terminates on the last business day of the month prior to the contract month.

https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contractSpecs_futures.html

https://www.cmegroup.com/trading/energy/refined-products/rbob-gasoline_contract_specifications.html

ASSIGNMENT

1) Prepare an Excel file and for each strategy

a) Calculate daily P&L in dollar per barrel (profit/loss)

where represents the specific maturity contract that you are holding at time .

b) Construct cumulative P&L in dollar per barrel (equity line, or roll-adjusted time series)

c) Calculate final strategy P&L in total $$, as

If you prefer to use Python for calculations, you will still need to show the detailed output in Excel.

2) Provide one-page Word document summary, where you

a) Report final for each commodity, including cumulative transaction costs.

b) Graph the equity line side-by-side next to the spot price which is an approximation for the price of the physical commodity.

c) Verbally explain what caused the main difference between the performance of WTI and RBOB strategies. Comment about the behavior of futures investments relative to commodity spot prices during the same period.

Submit both documents to NYU Brightspace.