Quantitative analysis to support new energy trading operations at major financial trading firm

  • Risk Management

A major financial trading firm approached Prescio Consulting for quantitative analysis to support its new energy trading operations.

The client planned to build a marketplace for energy derivative products whose values were very sensitive to the correlation between heating oil, gasoline, and crude oil prices. In response to the client’s request, our team undertook an exhaustive analysis of these energy market correlations.

We utilized advanced econometric methods to estimate time varying correlations that depend on prevailing market conditions (such as the spread between gasoline and crude oil prices). In the end, we developed an algorithm to forecast the relevant correlations over any time horizon. The client subsequently implemented this methodology into its new energy trading operations.