A stochastic control approach to managed futures portfolios

Tim Leung and Raphael Yan ()
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Raphael Yan: #x2020;Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, Ontario L8S 4K1, Canada

International Journal of Financial Engineering (IJFE), 2019, vol. 06, issue 01, 1-22

Abstract: We study a stochastic control approach to managed futures portfolios. Building on the (Schwartz, 1997) stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity futures or multiple futures contracts over a finite horizon. By analyzing the associated Hamilton–Jacobi–Bellman (HJB) equation, we solve the investor’s utility maximization problem explicitly and derive the optimal dynamic trading strategies in closed form. We provide numerical examples and illustrate the optimal trading strategies using WTI crude oil futures data.

Keywords: Commodity futures; dynamic portfolios; trading strategies; utility maximization (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Working Paper: A Stochastic Control Approach to Managed Futures Portfolios (2018)
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DOI: 10.1142/S2424786319500051

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