Modeling the Correlation Function in the Crude-Oil Futures Market
11 Pages Posted: 15 Aug 2009
Date Written: August 4, 2009
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: Suggested Citation