Dynamic calibration of price-trend parameters for commodity futures trading

• Type: Article in International Scientific Journal
• Date: 1994

Authors

José Sarsfield Cabral (Author) FEUP; Guimarães, RC (Author) Other

Journal

Title: Journal of the Operational Research Society

Vol. 45

Pages: 867-877

ISSN: 0160-5682

Publisher: Taylor & Francis

Indexing

Scopus - 0 Citations

Other information

Authenticus ID: P-00H-M38

DOI: 10.1057/jors.1994.138

Resumo (PT): This paper addresses the problem of buying commodities through the futures markets and deals specifically with a heuristic rule developed for the scenario described as 'purchasing under a deadline' The rule is based on short-term forecasts produced by Taylor's price-trend model. In a previous study applied to the Chicago Board of Trade (CBOT) corn futures market the price-trend parameters of the stochastic process generating the dolly returns were shown to be nearly stable over time and hence could be estimated using a static procedure. However, the analysis presented in this paper concerning the CBOT soybean futures market strongly suggested that those parameters were unstable, impairing the successful application of the purchasing rule. The authors recommend the continuous CUSUM monitoring of the purchasing results and propose a procedure for calibrating dynamically the price-trend and buying parameters. Under this procedure the price-trend parameter estimates are derived from exponentially smoothed sample autocorrelation coefficients of the rescaled dolly returns.. The procedure was developed and tested using the 1972-87 series of CBOT daily soybean futures closing prices. The results suggest that it leads to an improvement on the purchasing results derived from the static parameter calibration procedure formerly adopted.

Abstract (EN): This paper addresses the problem of buying commodities through the futures markets and deals specifically with a heuristic rule developed for the scenario described as `purchasing under a deadline¿. The rule is based on a short-term forecasts produced by Taylor¿s price-trend model. In a previous study applied to the Chicago Board of Trade (CBOT) corn futures market the price-trend parameters of the stochastic process generating the daily returns were shown to be nearly stable over time and hence could be estimated using a static procedure. However, the analysis presented in this paper concerning the CBOT soybean futures market strongly suggests that those parameters were unstable, impairing the successful application of the purchasing rule. The authors recommend the continuous CUSUM monitoring of the purchasing results and propose a procedure for dynamically calibrating the price-trend and buying parameters. Under this procedure the price-trend parameter estimates are derived from exponentially smoothed sample autocorrelation coefficients of the rescaled daily returns. The procedure was developed and tested using the 1972-87 series of CBOT daily soybean futures closing prices. The results suggest that it leads to an improvement on the purchasing results derived from the static parameter calibration procedure formerly adopted. © 1994 Operational Research Society Ltd.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 2