Cutting edge: Correlation functions in the crude oil and natural gas futures markets

Ripple effect

Coefficients of correlations are used intensively throughout the energy markets. In the area of real products, they play a crucial role in the valuation of assets such as storage facilities and pipelines, and as spread options between input and output prices. On the financial side, the valuation of structured products frequently depends on one or more points on a particular futures curve – for example, calendar-spread options on different points of the crude oil curve – with concomitant importan