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arXiv · 1811.01916

A Stochastic Control Approach to Managed Futures Portfolios

Tim Leung·Raphael Yan
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Abstract

We study a stochastic control approach to managed futures portfolios. Building on the Schwartz 97 stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity futures or multiple futures contracts over a finite horizon. By analyzing the associated Hamilton-Jacobi-Bellman (HJB) equation, we solve the investor's utility maximization problem explicitly and derive the optimal dynamic trading strategies in closed form. We provide numerical examples and illustrate the optimal trading strategies using WTI crude oil futures data.

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Tim Leung, Raphael Yan. 2018-11-05. A Stochastic Control Approach to Managed Futures Portfolios. https://arxiv.org/abs/1811.01916

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