Cutting edge: Valuation of spread commodity structures
Valuation of spread commodity structures in co-integrated futures markets
It is well known (see, for example, Eydeland & Wolyniec, 2012) that several consumable commodity markets are related through equilibrium mechanisms: either through substitution or complementarity effects. For example, natural gas is used for production of electrical power in the US and UK to such an extent that power price formation is clearly influenced by the behaviour of natural gas prices. Examples of other related commodities abound: crude oil and gasoline, heating oil and gasoline
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