Modeling the Correlation Function in the Crude-Oil Futures Market

11 Pages Posted: 15 Aug 2009

See all articles by Ehud I. Ronn

Ehud I. Ronn

University of Texas at Austin - Department of Finance

Date Written: August 4, 2009

Abstract

Numerous participants in the energy industry require the computation of coefficients of correlation in a large-industry portfolio. Addressing the specifics of the crude-oil futures contracts, this paper proposes and implements a simple intuitive procedure that reduces the cross-maturity correlations in crude-oil futures to the estimation of two parameters. We argue this procedure is more intuitive than the traditional statistical solution of principal-components analysis.

Keywords: Oil futures contracts, correlation

JEL Classification: G13, Q40

Suggested Citation

Ronn, Ehud I., Modeling the Correlation Function in the Crude-Oil Futures Market (August 4, 2009). Available at SSRN: https://ssrn.com/abstract=1452897 or http://dx.doi.org/10.2139/ssrn.1452897

Ehud I. Ronn (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Graduate School of Business
Austin, TX 78712
United States
512-471-5853 (Phone)
512-471-5073 (Fax)

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