Operations Research, Systems Engineering and Industrial Engineering Commons^™

Optimal Trading Of A Storable Commodity Via Forward Markets, Behzad Ghafouri

Electronic Thesis and Dissertation Repository

A commodity market participant trading via her inventory has access to both spot and forward markets. To liquidate her inventory, she can sell at the spot price, take a short forward position, or do a combination of both. A trade is proposed in which there is always a hedging forward contract, which can be considered a dynamic cash and carry arbitrage. The trader can adjust the maturity of the forward contract dynamically until the inventory is depleted or a time constraint is reached. In the first setup, the storage contract (to carry inventory) is assumed to have a constant cost …