Future Risk
Research Paper
February 1, 2006
Preview
We pick up a theme similar to that of our November note: which historical time series are most appropriate for forecasting risk for a particular asset. Here, we consider non-financial futures contracts, that is, contracts involving the delivery of energy, metals, food, and so on. In the absence of much of a cash market in the underlying deliverables, we must forecast risk from the history of the futures contracts themselves. While examining the price history of specific contracts is an obvious tack, it is not the most useful for forecasting. We illustrate through examples with crude and heating oil contracts that the characteristics of individual commodities lead to different considerations for forecasting.
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