nmehlS-8b3Y.pdf - MITOCW | watch?v=nmehlS-8b3Y The following content is provided under a Creative Commons license Your support will help MIT

nmehlS-8b3Y.pdf - MITOCW | watch?v=nmehlS-8b3Y The...

This preview shows page 1 - 3 out of 30 pages.

MITOCW | watch?v=nmehlS-8b3Y The following content is provided under a Creative Commons license. Your support will help MIT OpenCourseWare continue to offer high-quality educational resources for free. To make a donation or view additional materials from hundreds of MIT courses, visit MIT OpenCourseWare at ocw.mit.edu. PROFESSOR: So what I would like to discuss today is just touch upon what kind of problems the quantitative analysts are solving in the commodity world, the problems that are somewhat different from the other markets. And I'm sure you have the whole year of lectures here from people in different markets. And you will judge for yourself that the models we're building are somewhat, if not completely, different. So this is my goal today is just for you to have some taste of what kind of models we're looking at. So let's start. Let's start with the following abstract from the Dow Jones publication, the dispatch which announced in 2009 that the Trafigura-- which is the biggest trader, one of the biggest commodity and energy trader-- is potentially on track to post its best results ever in fiscal 2009 on lower oil prices and contango markets. Remember, 2008, just the year before that, the oil prices shot to the highest possible level, to $159 per barrel. And a lot of people blamed the traders for the high oil prices. And yet, in 2008, when the prices dropped-- in 2009, I'm sorry, next year-- when the prices dropped to $30 per barrel, as you remember, to the lowest possible level that we remember, Trafigura is about to make the biggest profit ever. So it sounds like a contradiction. So they're making money on the low oil prices and contango. And contango, which I have to explain to you what it is-- I assume that everybody here knows what the futures contract is. If not, just let me know, and I will explain. It's very simple concept, so don't be shy and just tell me. So I would like to show you how Trafigura will make the record profit in the year when the prices are at the record low level, but they are in contango. So this is the 1
Image of page 1
graph of futures contracts, futures prices, oil futures prices on January 15, 2009. Futures contract is simply the contract that allows you to buy today-- let's say, in January-- the barrel of oil for delivery in some future time. That's all. You always know what the price will be by looking into Wall Street Journal , Section C. Open, you will see. If you want to have delivery in August, the price will be around, what? $55? If you want delivery on February of next year-- so February, 2010-- the price will be $60. If you want delivery now, the price will be $35. So if you want to buy, basically, the spot price, for your knowledge, there is no spot price, as such. And whatever you see on CNBC, for example, on TV, when they give you the spot price of oil, it's the price of the first future contract-- so this one-- of the nearby, the most nearby futures contract.
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 30 pages?

  • Spring '17
  • Jim Angel

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors