Relative Value Trade Management

Relative Value Trade Management

This project explores how to trade relative value commodity pairs from a quantamental point of view.

When a relative value opportunity has been identified along the curve of two fundamentally related commodites, where on the curve should we express the trade?

  • In the part of the curve that is furtherst from the mean
  • Furthest from the mean with respect to current fundamentals
  • Near the front of the curve, hoping to earn a roll return
  • Spread accross the curve
    • equally weighted
    • open interest weighted

In what ratio should be trade the long and short legs of a relative value commodity opportunity?

  • ton for ton
  • equal notional exposure
  • vol adjusted notional exposure
  • implied vol adjusted notional exposure
  • cointegration hedging ratio

  • what about options?

    • put-put or call-call structure
    • what ratio of long and short legs

  • Should these values be defined at trade onset or can it be adjusted?

  • Is it possible to model the ratio as a function of underlying fundamentals?

Relative Value Spreads Rolling Machine Learning
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Mauritz van den Worm
Portfolio Manager and Quantitative Researcher

My research interests include the use of artificial intelligence in managing commodity portfolios

Posts

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Last updated on 17 min read Relative Value, Sizing, Roll

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