Risk Maximization of Metal Futures through the Usage of Derivative Strategies
Session Number
F11
Advisor(s)
Marc De Muart, TransMarket Group LLC Adrian Jaronczyk, TransMarket Group, LLC
Location
B-110
Start Date
28-4-2016 12:45 PM
End Date
28-4-2016 1:10 PM
Abstract
When using financial instruments, traders look for the best possible methods for maximizing the risk they undertake. Many different strategies have been developed to accomplish this goal. This project focuses on a single strategy, the calendar spread, analyzing which types of calendar spreads maximize risk and reward for over 500 contracts on a three year period. Financial tools such as Bloomberg Terminal and Transmarket Group's Modeling Tools were used to model each of these strategies and implementation was done with Visual Basic for Applications, in conjunction with Python and Microsoft Excel. After modeling the different types of calendar spreads for 6 different metals, a best model was determined that matched the performance of the market itself best, looking at the volatility and rate of return as these are the primary factors that determine the viability of a trading strategy. Further back-testing of the model over a different time horizon may change this conclusion, as a different market environment will yield different results. In conclusion, there is no real best type of spread, but certain types of spreads are more suitable for certain investors.
Risk Maximization of Metal Futures through the Usage of Derivative Strategies
B-110
When using financial instruments, traders look for the best possible methods for maximizing the risk they undertake. Many different strategies have been developed to accomplish this goal. This project focuses on a single strategy, the calendar spread, analyzing which types of calendar spreads maximize risk and reward for over 500 contracts on a three year period. Financial tools such as Bloomberg Terminal and Transmarket Group's Modeling Tools were used to model each of these strategies and implementation was done with Visual Basic for Applications, in conjunction with Python and Microsoft Excel. After modeling the different types of calendar spreads for 6 different metals, a best model was determined that matched the performance of the market itself best, looking at the volatility and rate of return as these are the primary factors that determine the viability of a trading strategy. Further back-testing of the model over a different time horizon may change this conclusion, as a different market environment will yield different results. In conclusion, there is no real best type of spread, but certain types of spreads are more suitable for certain investors.