A multi-factor model with time-varying and seasonal risk premiums for the natural gas market

In this paper, we develop a quantitative model of the US natural gas market that explores its multi-factor structure and its time-varying and seasonal risk premiums. With weekly spot and futures prices we show that three factors are preferred to describe the futures term structure, and the time-varying risk premiums are also significant. Moreover, we found that the market implies a seasonal risk premium with two peaks and troughs in one year, which is important to correctly price the futures by maturity month. Finally, we link this seasonal risk premium to the uncertainty of the US natural gas demand and find a positive relationship between them. These results reveal the complex aspect of the market, and may have useful applications for other commodity sectors.     

Distributional predictability between commodity spot and futures: Evidence from nonparametric causality-in-quantiles tests

Unbiasedness and informational efficiency of futures markets under different market conditions is a claim that still remains unsettled in the theory of non-arbitrage and asset pricing and in empirics as well. This study investigates this claim using a novel causality-in-quantile model of Balcilar et al. (2016) for two energy commodities, crude oil and natural gas, and two precious metals, gold and silver. The model estimates causalities-in-mean and -variance between spot and futures market in a time varying context conditioning on the states of the markets represented by the quantiles of the conditional distribution of the dependent variable. The causality in return is asymmetric and unidirectional from futures to spot market for all commodities. That means the predictability of the futures market, due to its informational efficiency, is strong in the normal market and declines when the spot market enters into extreme bearish and bullish conditions. The causality-in-variance is bi-directional in the normal to bull markets except for natural gas where it is unidirectional from futures to spot only. It is a confirmation of the risk management and price discovery role of futures market. Lack of causality in the bear market entails some kind of disconnectedness between the spot and futures markets in a bad market where intervention is called for from the exchange and regulators to restore stability in the spot and futures market dynamics. Although economic uncertainty is found to have no impact on the causality-in-mean except gold; however, the causality-in -variance is influenced in the case of gold and crude. This is a kind of reaffirmation of the fact that under economic uncertainty, futures contracts are used for hedging under different market conditions. However, the causality between commodity spot and futures are resilient to exchange rate.     

Inventory announcements,jump dynamics,volatility and trading volume in U.S. energy futures markets

This paper applies nonparametric methods to identify jumps in daily futures prices and intraday jumps surrounding inventory announcements of crude oil, heating oil and natural gas contracts traded on the New York Mercantile Exchange. The sample period of our intraday data covers January 1990 to January 2008. We have obtained several interesting empirical results. (1) Large volatility days are often associated with large jump components, and large jump components are often associated with the Energy Information Administration's inventory announcement dates. (2) The volatility jump component is less persistent than the continuous sample path component. (3) Volatility and trading volume are higher on days with a jump at the inventory announcement than on days without a jump at the announcement. Furthermore, the intraday volatility returns to normal faster following inventory announcements with jumps than after announcements without jumps.     

广东构建天然气交易市场的建议

目的  广东省是天然气消费大省,但是天然气进口依存度高、缺乏定价话语权,天然气利用价格长期处于高位,亟需建立广东天然气交易市场,形成有国际影响力的基准定价枢纽,以保障天然气供应安全、降低天然气利用成本。 方法  研究欧洲和美国天然气市场化改革的过程,总结其经验要点,得出对广东天然气市场的启示;分析广东天然气市场结构、基础设施和市场化改革的现状;构建适合广东实际情况的天然气市场框架、提出推动天然气市场建设的重点任务。 结果  研究表明：广东省天然气需求旺盛、供应多元、基础设施完备、市场化基础良好、金融市场完善,具备建设区域虚拟交易枢纽的基础条件,可参考英国NBP和荷兰TTF模式,构建天然气交易枢纽和交易所协同发展的天然气交易市场体系。天然气交易枢纽方面重点推进天然气运输服务和销售业务分离、建立干线管网统一调度机制、建立管容分配和托运商制度、建立基于热值的计量制度、搭建基础设施信息公开和管容交易系统等任务。天然气交易所方面重点制定市场交易和运营规则、搭建交易信息系统、推动天然气期现对接和期货品种等。 结论  所提方案符合广东实际、具备可操作性,可有效指导广东天然气交易市场建设。     

A novel market efficiency index for energy futures and their term structure risk premiums

This paper proposes a novel futures market efficiency index which aggregates the efficiencies of futures contracts across their term structure spanning from one month to 12 months. The index measures the ability for price discovery of a long-term futures contract on its nearby short-term contract consistently across its terms. The index uses a recently developed futures market efficiency test which accounts for heteroscedastic prices and time-varying risk premiums. It simultaneously estimates the term premiums of futures, providing valuable information for the investor. The proposed index is employed to investigate the efficiencies of four major energy commodities, namely, crude oil, natural gas, heating oil, and gasoil during the sample period 1990–2016. Numerical results indicate that the market efficiencies vary across terms and across energy commodities. Gasoil futures traded on the Intercontinental Exchange (ICE) are the most efficient and natural gas futures are the least efficient in prices. The spillover dynamics of market risk information across futures markets are investigated using conditionally heteroscedastic common factors (CHCFs) extracted for each commodity using the estimated term premiums. There exist significant delayed, contemporaneous, and potential information spillovers among term premiums of the energy commodities in our sample. Our findings are robust and they can help investors to optimally diversify their portfolios.     

Explaining credit default swap spreads by means of realized jumps and volatilities in the energy market

This paper studies the relationship between credit default swap (CDS) spreads for the Energy sector and oil futures dynamics. Using data on light sweet crude oil futures from 2004 to 2013, which contains a crisis period, we examine the importance of volatility and jumps extracted from the futures in explaining CDS spread changes. The analysis is performed at an index level and by rating group; as well as for the pre-crisis, crisis and post-crisis periods. Our findings are consistent with Merton's theoretical framework. At an index level, futures jumps are important when explaining CDS spread changes, with negative jumps having higher impact during the crisis. The continuous volatility part is significant and positive, indicating that futures volatility conveys relevant information for the CDS market. As for the analysis per rating group, negative jumps have an increasing importance as the credit rating deteriorates and during the crisis period, while the results for positive jumps and futures volatility are mixed. Overall, the relation between the CDS market and the futures market is stronger during volatile periods and strengthened after the Global Financial Crisis.     

Minimal variance hedging of natural gas derivatives in exponential Lévy models: Theory and empirical performance

We consider the problem of hedging European options written on natural gas futures, in a market where prices of traded assets exhibit jumps, by trading in the underlying asset. We provide a general expression for the hedging strategy which minimizes the variance of the terminal hedging error, in terms of stochastic integral representations of the payoffs of the options involved. This formula is then applied to compute hedge ratios for common options in various models with jumps, leading to easily computable expressions. As a benchmark we take the standard Black–Scholes and Merton delta hedges. We show that in natural gas option markets minimal variance hedging with underlying consistently outperform the benchmarks by quite a margin.     

Understanding volatility dynamics in the EU-ETS market

We study the short-term price behavior of Phase 2 EU emission allowances. We model returns and volatility dynamics, and we demonstrate that a standard ARMAX-GARCH framework is inadequate for this modeling and that the gaussianity assumption is rejected due to a number of outliers. To improve the fitness of the model, we combine the underlying price process with an additive stochastic jump process. We improve the model's performance by introducing a time-varying jump probability that is explained by two variables: the daily relative change in the volume of transactions and the European Commission's announcements regarding the supply of permits. We show that (i) sharp increases in volume have led to increased volatility during the April 2005–December 2007 period but not for the period beginning in January 2008, and (ii) announcements induce jumps in the process that tend to increase volatility across both periods. Thus, authorities face a trade off between disseminating information effectively and promoting market stability.     

Good,bad cojumps and volatility forecasting: New evidence from crude oil and the U.S. stock markets

In this article, we investigate the impacts of jumps, cojumps and their signed components on forecasting oil futures price volatility in the framework of the heterogeneous autoregressive realized volatility model. Our empirical results reveal several noteworthy findings. First, the effects of signed jumps and cojumps based on the daily and intraday jump tests on future volatility are asymmetric, and the negative components are much more powerful in forecasting volatility. Moreover, our proposed models, including the signed jump and cojump components, are able to generate higher forecasting accuracy, and we find that disentangling the effects of positive and negative jumps and cojumps can significantly improve forecasts of future volatility. Lastly, our findings are reliable for various robustness checks and our study provides some new insights into forecasting oil price realized volatility, which are useful for researchers, market participants, and policymakers.     

Optimal hedging under biased energy futures markets

Optimal futures hedging positions for those agents trying to maximize their expected utility will depend on their view about the evolution of the market and on how risk adverse they are. The most risk adverse agents will probably decide to full-cover their positions. But when a futures bias exists, hedgers with moderate or low degree of risk aversion can alter their strategy depending on the expected gains in futures markets. In our application to the UK natural gas market, we find a statistically significant time-varying negative futures bias that can be forecasted with confidence. As a result of this bias, most effective and best performing hedging strategies for moderate risk-averse agents are those involving short (long) hedging in winter (summer) with a hedging ratio above (below) the minimum variance hedge ratio. These findings are of great interest to practitioners in the UK natural gas markets and the methodology can be extrapolated to other energy markets.     

An information diffusion-based model of oil futures price

Inspired by the increasing evidence of financialization/speculation in commodity pricing, this paper constitutes a first attempt to build an information diffusion-based asset pricing framework for the oil futures market. With gradual information dissemination, slowly decaying uncertainty about the asset's future fundamentals generates persistent conditional volatility and a drift in asset return. Volatility-based proxies for information flows are proposed to examine empirically the asset pricing implications. The results confirm a significant intertemporal relationship between return on the price of oil futures, information diffusion and volatility components. An important implication of our study is that the slow diffusion of information generates predictability in price dynamics. A forecasting model is then constructed and tested in relation to our theory. It is found that the lagged series of the pricing factors possess significant predicting power for returns.     

燃料油期货市场运行效率实证分析

本文运用EG协整理论和信息份额模型等方法,从燃料油期货与现货价格的长期关系、价格发现、市场投机度、价格风险四个方面探讨了燃料油期货市场的运行效率。结果表明,燃料油期货市场已初步具有了价格发现和套期保值功效,但争取亚洲定价权还需继续努力,并就我国石油期货市场进一步发展应注意的问题进行了分析。     

中国天然气现货市场与期货市场关系研究

叙述了中国天然气现货市场形成情况以及目前的发展现状,分析了天然气现货市场与期货市场关系,简要探讨如何在已有的天然气现货市场的基础上建立天然气期货市场。     

Pricing German Energiewende products: Intraday cap/floor futures

In this paper, we introduce a model for the pricing of German intraday cap/floor futures, introduced by the EEX in 2015. We give a thorough overview of the German intraday market and in particular introduce the ID₃ price index, which is the underlying for intraday cap/floor futures. To price these derivatives, we propose a Hull-White model from interest rate theory with seasonality from futures prices. We apply our theoretical results to market data and conduct an empirical analysis involving the initial fit and empirical distribution of intraday cap futures prices.     

基于改进两部制的天然气管输定价研究

近年来我国部分城市相继出现天然气供应紧张局面,天然气短缺暴露了现行天然气定价机制的不足.研究科学合理的天然气管输定价方法,对于完善我国天然气定价机制,确定合理的天然气价格具有十分重要的作用.目前,我国主要采取“老线老价、新线新价”的天然气管输定价方法.对于“老线老价”,天然气管输定价参照铁路运输定价方法具有很大的不科学性.“新线新价”虽然在很大程度上解决了过去管道运输定价机制套用铁路运价所带来的问题,但也存在许多不足,如无法真实反映价值、没有考虑到天然气工业的发展阶段、无法反映用户结构的多样性、没有反映出供求关系以及无法起到削峰填谷的作用等.目前我国受管制行业广泛采用两部制定价方法,这虽然有利于实现经济福利最大化,但它是以固定费用的征收不会使消费者退出消费市场为前提的,没有考虑不同消费者的价格承受能力,也没有考虑需求量的波动,因此在原有两部制的基础上做出改进,使其更加科学合理.     

我国天然气价格改革浅析

我国现行的以成本加成法为基础的天然气定价机制使天然气价格偏低,从而影响了天然气的进口,造成终端消费市场的过度发展,不利于天然气企业进行成本管理,天然气定价机制改革已迫在眉睫。国外天然气价格成功改革的经验为我国提供了借鉴,但俄罗斯模式和日韩模式都不适合于中国。美国、加拿大、英国等国家天然气定价机制都经历了3个阶段,即传统固定价格阶段、天然气价值定价阶段、竞争性市场形成阶段。我国正处于天然气价格改革的第一阶段末期,应参考美国、加拿大等国的经验改革现有的天然气定价机制,建立与竞争性能源价格挂钩的定价方式,按照热值当量法计算天然气与其他竞争能源的比价关系;最终目标应是建立竞争性的市场,天然气价格由市场竞争形成。建议天然气下游利用加权定价法计算天然气终端价格,中游利用"两部制"法制定管输费,上游利用净回值法制定出厂价。同时,应制定天然气产业链一体化协调发展的相关政策,建立并完善天然气监管机构,及时处理天然气上中下游利益分配问题,制定高效的天然气价格听证会制度。     

Dynamic spillover effects among crude oil,precious metal,and agricultural commodity futures markets

This paper examines spillover effects among six commodity futures markets – gold, silver, West Texas Intermediate crude oil, corn, wheat, and rice – by employing the multivariate DECO-GARCH model and the spillover index. Specifically, we investigate the dynamics of return and volatility spillover indices to reveal the intensity and direction of transmission during the recent global financial and European sovereign debt crises. Our empirical results are as follows. First, we estimate a positive equicorrelation between commodity futures market returns and find that it increased sharply during the crises. This effect can persist during periods of economic and financial turmoil, diminishing the benefits of international portfolio diversification for investors. Second, we identify bidirectional return and volatility spillovers across commodity futures markets, and find more pronounced trends in their levels in the post-crisis period. This indicates the strong impact of spillovers during crisis periods. Third, both gold and silver are information transmitters to other commodity futures markets, while the remaining four commodity futures investigated were receivers of spillovers during recent periods of financial stress. Finally, we analyse the optimal portfolio weights and time-varying hedge ratios between metal and other commodities futures markets. Overall, our findings provide new insights into channels of information transmission, which may improve investment decisions and inform portfolio investors' trading strategies.     

Humps in the volatility structure of the crude oil futures market: New evidence

This paper analyses the volatility structure of commodity derivatives markets. The model encompasses hump-shaped, unspanned stochastic volatility, which entails a finite-dimensional affine model for the commodity futures curve and quasi-analytical prices for options on commodity futures. Using an extensive database of crude oil futures and futures options spanning 21 years, we find the presence of hump-shaped, partially spanned stochastic volatility in the crude oil market. The hump shaped feature is more pronounced when the market is more volatile, and delivers better pricing as well as hedging performance under various dynamic factor hedging schemes.     

Time-varying long range dependence in energy futures markets

This study aims to investigate the presence of long-range dependence in energy futures markets. Using a daily dataset covering from 1990 to 2013 (which includes crucial events for energy markets such as invasion of Iraq and global financial crisis of 2008), we estimate time-varying generalized Hurst exponents of several energy futures contracts with different times to maturity using a rolling window approach. Results reveal that efficiency of energy futures markets is clearly time-varying and changes drastically over the sample period. For futures contracts with 1–4 months to maturities, crude oil and gasoline are found to be more efficient compared to others. On the other hand, for contracts with 5–9 months to maturities, crude oil and natural gas futures are more efficient. For almost every different month to maturity, heating oil and gas oil futures are found to be the least efficient markets. Moreover in general, the efficiency of energy futures markets is found to be decreasing dramatically when time to maturity is increasing. Several implications are discussed.     

The role of underground storage in the dynamics of the US natural gas market: A threshold model analysis

Natural gas is an important source of energy in the global economy, hence understanding the drivers of its prices is of significant interest for the many economic agents. This paper investigates the role of inventories for the dynamics of the U.S. natural gas market. Our contribution is twofold. First, within the threshold structural VAR framework we demonstrate that in a low inventory regime spot prices are more responsive to economic fundamentals in comparison to situation in which the inventories are high. Second, we present evidence that the level of natural gas inventories have a significant effect on the relationship between spot and futures prices.