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    Time-consistency in managing a commodity portfolio: a dynamic risk

    Geman, Hélyette and Ohana, Steve (2005) Time-consistency in managing a commodity portfolio: a dynamic risk. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    We consider the problem of the manager of a storable commodity (e.g. hydro, coal) portfolio facing demand risk while having access to storage facilities and illiquid spot and forward markets. In this setting, we emphasise that a dynamically consistent way of managing risk over time must be introduced. In particular, we demonstrate the temporal inconsistency of static risk objectives based on final wealth and advocate the use of a new class of recursive risk measures such as those suggested by Epstein et al. (1989) and Wang (2000) for portfolio optimisation and valuation. These types of risk measures not only provide time-consistent decision planning but allow the portfolio manager to control independently the occurrence of cash-flows across time and across random states of nature. We illustrate the discussion in an empirical section where the trade-off between final wealth risk and bankruptcy risk at an intermediate date is analysed and the synergy between the physical assets composing a commodity portfolio is assessed.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0610
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 28 Mar 2019 06:52
    Last Modified: 04 Oct 2019 06:48
    URI: http://eprints.bbk.ac.uk/id/eprint/26933

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