Four essays in commodity markets: asset allocation, pricing, and risk management

Mención Internacional en el título de doctorOur study is divided into two parts. The first part (Chapter 2 and Chapter 3) analyzes the multivariate distribution of commodity returns and its impact on portfolio selection and tail risk measures. Chapter 2 solves the portfolio selection problem of an investor with three-moment preferences when commodity futures are part of the investment opportunity set, providing a conditional copula model for the joint distribution of returns that allows for time-varying moments and state-dependent tail behavior. Chapter 3 approximates the exposure of physical and financial players to energy price risk using linear combinations of energy futures; it also analyzes the tail behavior of energy price risk using a dynamic multivariate model, in which the vector of innovations is generated by different generalized hyperbolic distributions. The second part (Chapter 4 and Chapter 5) considers the valuation of real assets and commodity derivatives in the presence of non-Gaussian shocks in a continuous time framework. Specifically, Chapter 4 employs a jump diffusion model for the price differentials and proposes a valuation tool for the connection between two electricity markets. Chapter 5 proposes a reduced-form model for the data generating process of commodity prices together with a more flexible change of measure, capable of changing the mean-reversion rate of Gaussian and jump processes under the risk-adjusted probability measure. Some parts of this thesis have been presented in different seminars, workshops, and conferences. Chapter 2 was presented at the 2011 INFINITI Conference on International Finance (Trinity College, Dublin), the 2011 Conference of the Multinational Finance Society (LUISS, Rome), the 2012 International Conference of the Financial Engineering and Banking Society (ESCP, London), the 2012 International Finance and Banking Society Conference (Valencia), the 2012 Meetings of the European Financial Management Association (University of Barcelona), and Universidad Autónoma de Madrid. A previous version of Chapter 3 was presented at the 2010 AEEE Conference on Energy Economics (University of Vigo). Chapter 4 was presented at the 2010 Finance Forum (CEU, Elche), the 2011 AEEE Conference on Energy Economics (University of Barcelona), University of Duisburg-Essen, and Birkbeck-University of London. Previous drafts of Chapter 5 were presented at the 2009 Conference on Energy Finance (Universities of Oslo and Agder), the 2010 Industrial-Academic Forum on Commodities, Energy Markets, and Emissions Trading (Fields Institute, Toronto), and the 2011 Energy and Finance (Erasmus School of Economics).Programa Oficial de Posgrado en Investigación en Economía de la Empresa y Métodos CuantitativosPresidente: Alfonso Novales Cinca; Secretario: Rüdiger Kiesel; Vocal: David Vereda