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Please use this identifier to cite or link to this item: http://arks.princeton.edu/ark:/88435/dsp012227ms327
Title: Game Theoretic and Financial Models for Energy Commodities and Futures Prices
Authors: Funk, Jacob James
Advisors: Sircar, Ronnie
Contributors: Operations Research and Financial Engineering Department
Keywords: Differential Games
Energy Commodities
Mathematical Finance
Subjects: Operations research
Finance
Mathematics
Issue Date: 2017
Publisher: Princeton, NJ : Princeton University
Abstract: This thesis develops models for commodity markets in which the exchange of futures plays a central role in determining the behavior of prices. We approach this problem from two sides, first by assessing the impact of a futures exchange on a game theoretic model for a commodity market and second by looking at the impact of financialization in an existing futures exchange. We propose a formal framework for a Cournot differential game which includes the possibility of stochastic drivers of inventory and demand. Using this framework, we establish results about market prices and the behavior of players in response to both stochastic and deterministic changes in market conditions. We also give several conditions that can guarantee desirable properties such as the existence of market prices and nondegenerate equilibrium strategies. The Cournot differential game is then used as a framework to build up a model for a futures market that functions in continuous time. Comparing the results from different models allows us to assess the impact of introducing a futures exchange to a market for energy commodities. In the final section, we shift focus to a short-term model that describes the behavior of individual futures prices. We examine the impact of a type of storage financialization caused by the trading of options meant to replicate the payoff of owning a storage facility for a fixed period of time. We find that investing in the financial approximation of storage has a much different impact than investing in physical storage, increasing futures price volatility and reducing the correlation between the prices at different delivery dates.
URI: http://arks.princeton.edu/ark:/88435/dsp012227ms327
Alternate format: The Mudd Manuscript Library retains one bound copy of each dissertation. Search for these copies in the library's main catalog: catalog.princeton.edu
Type of Material: Academic dissertations (Ph.D.)
Language: en
Appears in Collections:Operations Research and Financial Engineering

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