book

The Handbook of Commodity Investing

by FRANK J. FABOZZI, ROLAND FÜSS, DIETER G. KAISER

July 2008

Intermediate to advanced

1008 pages

27h 37m

English

Wiley

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MARKET PARTICIPANTSCOMMODITY SECTORSCOMMODITIES AS AN ASSET CLASS OF THEIR OWNCOMMODITY EXCHANGESPRICES AT THE COMMODITY FUTURES EXCHANGESMODELS OF EXPECTED RETURNSRISK AND PERFORMANCE CHARACTERISTICSPORTFOLIO OPTIMIZATION WITH COMMODITIESCONCLUSION

THE RELATIONSHIP BETWEEN FUTURES PRICES AND SPOT PRICESECONOMICS OF THE COMMODITY MARKETS: NORMAL BACKWARDATION VERSUS CONTANGOCOMMODITY PRICES COMPARED TO FINANCIAL ASSET PRICESCONCLUSION
STRATEGIC MOTIVATION FOR COMMODITY INVESTMENTSTACTICAL OPPORTUNITIES IN COMMODITY INVESTMENTSCONCLUSION
COMMODITIES AS AN INFLATION HEDGEDYNAMIC LINKAGES OF MONETARY POLICY AND COMMODITY RETURNS: A VECTOR AUTOREGRESSIVE ANALYSISCOMMODITIES AND EXCHANGE RATESCOMMODITIES AND THE BUSINESS CYCLECONCLUSION
LIMITATION OF RISK NEUTRAL PRICINGTWO BASIC MODELSTERM STRUCTURE OF COMMODITY PRICESFUTURES RETURNSA COMMON DECOMPOSITION OF FUTURES RETURNSCONCLUSIONAPPENDIX
PRODUCTION AS A TIME CONSUMING PROCESSNET PROCEEDS VERSUS COST RETURNCAPITAL MANAGEMENT IN FORESTRYREVENUES FINANCE EXPENDITURESFROM FEUDALISM TO CAPITALISMLOOKING BACK AND AROUNDCONCLUSIONAPPENDIX AAPPENDIX B
SUMMARY OF COMMODITY INDEXESEMPIRICAL ANALYSIS OF THE COMMODITY BENCHMARK PROBLEMA SOLUTION FOR HETEROGENEOUS INDEXESCONCLUSION
HISTORICAL RETURNSRETURN DECOMPOSITION AND DIVERSIFICATION RETURNCORRELATIONSINFLATIONRETURNS OVER THE BUSINESS CYCLETACTICAL ASSET ALLOCATIONCONCLUSION
SOURCES OF RETURN: AN ILLUSTRATIONUNIVARIATE ANALYSISMULTIVARIATE ANALYSISCONCLUSION
HOW FINANCIAL ECONOMISTS VIEW ASSET CLASSESREMOVE THE BORDERRISK, RETURN, AND DIVERSIFICATIONEMPIRICAL RESULTSPOTENTIAL PITFALLS OF COMMODITY INDEX PERFORMANCECONCLUSIONAPPENDIX
GROWTH AND BENEFIT OF MANAGED FUTURESGENERAL DESCRIPTION OF MANAGED FUTURESCTA INDEX CONSTRUCTIONEMPIRICAL ANALYSISISSUES IN PERFORMANCE MEASUREMENTCONCLUSION
IDEALS AND REALITIESVARIOUS APPROACHESTHE INFRASTRUCTUREPORTFOLIO GUIDELINES AND LIMITSTECHNIQUESRISK MANAGEMENT ANALYSIS REQUIREMENTS FOR TRADING OPTIONSCONCLUSION
MEAN REVERSION BEHAVIOR OF COMMODITY RETURNSMARKING THE NET ASSET VALUEMEASURING EVENT RISKSSTRESS TESTING USING VALUE AT RISKMEASURING LIQUIDITY RISKSPERFORMANCE ATTRIBUTIONMITIGATING OPERATIONAL RISKSCONCLUSIONS
RISK MANAGEMENT OF COMMODITY FUTURES PORTFOLIOSA TIME VARYING MODEL OF FORWARD VOLATILITYA MODEL OF CONTRACT INTERRELATIONSHIPSA PRACTICAL HEDGING EXAMPLECONCLUSION
COMMODITY PRICE DEVELOPMENTS: SOME FACTSSTATIONARITY AND COINTEGRATIONFORECASTING MODELSASSESSING FORECAST PERFORMANCEDATARESULTSCONCLUSION
TECHNICAL ANALYSISTREND FOLLOWERS AND MOVING AVERAGES SIGNALSLIMITS OF MOVING-AVERAGE-BASED TREND-FOLLOWING SYSTEMSNONTREND FOLLOWERS AND TRADING RANGE SIGNALSBACK-TESTING AND CALIBRATIONPORTFOLIO CONSTRUCTIONCONCLUSION
TRADE DISCOVERYTRADE CONSTRUCTIONPORTFOLIO CONSTRUCTIONRISK MANAGEMENTLEVERAGE LEVELUNIQUE CONTRIBUTION TO THE INVESTOR'S OVERALL PORTFOLIOCONCLUSION
COMMODITY FUTURES AS AN ASSET CLASSRETURN STATISTICS OF COMMODITY FUTURESALPHA STRATEGIES IN COMMODITY MARKETSCONCLUSION
WHAT TO LOOK OUT FOREXPOSURE TO COMMODITIESDERIVING EFFICIENT COMMODITY PORTFOLIOSTECHNICAL IMPLEMENTATION OF THE MEAN-CVAR APPROACHTHE EFFICIENT FRONTIER OF COMMODITY PORTFOLIOSCONCLUSION
BACKGROUNDTHE ROLE OF COMMODITIES IN INVESTMENT PORTFOLIOSPASSIVE COMMODITY INVESTINGACTIVE COMMODITY INVESTING VIA SPECIALIST CTAs AND HEDGE FUNDSPORTFOLIO IMPLICATIONSMACRO FUNDAMENTALS AND ACTIVE MANAGERS AS A HEDGECONCLUSIONS
COMMODITIES AS AN INFLATION HEDGEDISTRIBUTIONAL CHARACTERISTICS OF COMMODITIESINDEXES USED IN THE OPTIMIZATIONTHE EFFECT OF ALTERNATIVE INVESTMENTS ON TRADITIONAL PORTFOLIOSCONCLUSION
STRATEGIC ASSET ALLOCATIONSTATISTICAL SIGNIFICANCE OF THE PORTFOLIO IMPROVEMENTTACTICAL ASSET ALLOCATIONCONCLUSIONAPPENDIX A: THE OPTIMAL MEAN-VARIANCE PORTFOLIO WITH PENSION LIABILITIESAPPENDIX B: ROBUSTNESS ANALYSIS: DIFFERENT EXPECTED RETURNS
DIRECT CASH INVESTMENTINDIRECT INVESTMENTCONCLUSION
COMMODITY OPTIONS MARKETSHISTORICAL PRICE BEHAVIORSTOCHASTIC PROCESSESPRICING OPTIONSSWING OPTIONSCONCLUSION
TRADITIONAL FORWARD PRICINGELECTRICITY FORWARD PRICINGA NUMERICAL APPLICATIONCONCLUSIONAPPENDIX AAPPENDIX B
DRIVERS FOR COLLATERALIZED COMMODITY OBLIGATIONSLEGAL STRUCTURE OF A GENERIC CCOCONCLUSION
THE CISDM CTA INDEXESPERFORMANCE ANALYSIS OF CTA RETURNSHISTORICAL CTA RETURNSCONCLUSION
CTAs AND THEIR ASSETSMORTALITY AND SURVIVORSHIP BIAS OF CTASDATA AND METHODOLOGYEMPIRICAL RESULTSCONCLUSION
TYPES OF COMMODITY HEDGE FUNDSRISKS ASSOCIATED WITH ENERGY HEDGE FUNDSFUND CHARACTERISTICSRISK AND RETURN CHARACTERISTICSCONCLUSION
HARD COMMODITIES: ENERGYHARD COMMODITIES: METALSSOFT COMMODITIESCONCLUSION
USES OF GOLDGOLDEN FUNDAMENTALSGOLD INVESTMENT PRODUCTSGOLD MARKET INVESTMENT AND GOLD INSTRUMENTSGOLD PRICING DYNAMICSCONCLUSION
FACTORS DRIVING GOLD PRICESGOLD AS A PORTFOLIO CONSTITUENTCONCLUSION
THE SUPPLY OF SILVERTHE DEMAND FOR SILVERMARKET BALANCEHOW TO INVEST IN SILVERCONCLUSION
WHAT ARE BASE METALS?BASE METAL INDUSTRYMARKET STRUCTUREINVESTMENT STRATEGIESCONCLUSION
MARKETPLACES FOR ELECTRICITY IN EUROPESPOT AND FORWARD MARKETS FOR ELECTRICITYINFLUENCE FACTORS ON MARKET PRICEHEDGINGCONCLUSION
BASICSCOMMODITY RELATIONSHIPSPRICE STRUCTURESCONCLUSION
BACKGROUNDOPERATIONAL TRADING OF EU ALLOWANCESCONCLUSION
GRAINCATTLEHOGSCONCLUSION
PRICE FORECASTINGSUGAR AS AN INVESTMENTETHANOLHOW TO INVESTCONCLUSION
THE EFFICIENT MARKET HYPOTHESISTECHNICAL TRADING SYSTEMSEMPIRICAL STUDIESEXPLANATIONS FOR TECHNICAL TRADING PROFITSCONCLUSION

Content preview from The Handbook of Commodity Investing

CHAPTER 29 A Primer on Energy Hedge Funds

Oliver Engelen

Risk Analyst

Benchmark Capital Management GmbH

Dieter G. Kaiser, Ph.D.

Director Alternative Investments

Feri Institutional Advisors GmbH

Research Fellow

Centre for Practical Quantitative

Finance Frankfurt School of Finance and Management

The number and diversity of energy hedge funds increased dramatically from 2004 to 2006, from about 20 at the end of 2003 to over 500 as of May 2006.¹ From a hedge fund viewpoint, the energy markets and the commodity trading segment are a young, early-stage market.

According to HedgeFund.net, assets under management in the energy hedge fund sector have grown concurrently, from US$19.37 billion in 2003 to US$79.26 billion in 2006.

The primary reasons for this remarkable increase are (1) supply and demand dynamics across energy commodities; (2) the opportunity to earn better returns; and (3) the influx of skilled and experienced energy traders from the collapsed merchant segment (see Fusaro and Vasey²). The dynamics across energy commodities have driven commodity prices to record highs. As a result, volatility, the main source of arbitrage opportunities for hedge funds, has also increased.

Because of the early-stage character of this segment of hedge funds and the high degree of passive or index product types, energy-focused strategies can provide opportunities for active investment. However, according to a study by the New York Mercantile Exchange (NYMEX), the volatility energy is negatively ...