Structure and Behavior of Commodities Markets
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Date: 11-28-2005
Start Time:
6:00pm
End Time: 7:30pm
Speaker: David Eliezer, Integrated Finance Ltd.
Location: 412 Schapiro CEPSR, Davis Auditorium
ABSTRACT
We present a review of those features of the commodities markets which distinguish them from those of other financial assets. These features are, principally, the cost, and in particular the physical limits on storage and transport, the fluctuations of the market inventory of commodities, the inability to short the spot commodity, and the feedstock and substitution relations between one commodity and another. These present novel challenges for accurate stochastic modeling, which has not yet drawn attention enough from the academic community to go beyond first attempts, often borrowed from other fields such as fixed income. By elucidating those features which make commodities markets especially distinct, and far more interesting than other financial fields, we hope to stimulate greater academic interest in the field. We describe the terms of the fundamental instruments that trade in the markets, and give a sense of order of magnitude of the numbers, especially storage limits and production rates. We do not present any new results in this paper, nor any original work. There is very little mathematics, and our primary focus is on the qualitative empirical facts from the point of view of a dealer who wishes to calibrate a market to forward-looking market-implied data, rather than historical data.
BIO
David Eliezer has worked in finance for 10 years, and until recently was the chief quant of the commodities group at Goldman-Sachs. He is currently working for Integrated Finance, Ltd. Prior to his work at Goldman, he worked for Numerix, Inc., as Director of Quantitative Research; General Reinsurance, in its research and risk management group; Citibank, supporting its hybrid derivatives desk; and Morgan Stanley, in its Quantitative Programming group. Mr. Eliezer holds a B.A. from Princeton University and a Ph.D. from the University of California, both in Physics.