Optimal Portfolios in Commodity Futures Markets

Abstract:     
We consider portfolio optimization in futures markets. We model the entire futures price curve at once as a solution of a stochastic partial differential equation. The agents objective is to maximize her utility from the final wealth when investing in futures contracts. We study a class of futures price curve models which admit a finite-dimensional realization. Using this, we recast the portfolio optimization problem as a finite-dimensional control problem and study its solvability.

Number of Pages in PDF File: 21

Keywords: futures contract, commodity markets, portfolio optimization, stochastic partial differential equations, finite-dimensional realization, invariant foliation

JEL Classification: C61

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