Portfolio Risk Measurement in Commodity Futures Investments

When an investor elects to invest in a commodity index product, that investor realizes that he or she will earn the inherent return of the asset class and will be able to do so cheaply, but will not be provided with any downside risk protection.

Author(s):

Hilary Till

Principal, Premia Capital Management, LLCResearch Associate with the EDHEC Risk and Asset Management Research Centre

It will be the responsibility of the investor either time to the investments in commodity indices or to create a properly balanced overall portfolio, so as to avoid downside risk. Instead, when an investor chooses to invest in an actively managed commodity program for further added value, then that investor expects the potential downside of the active investment to be carefully managed. This paper covers the crucial elements of an active commodity manager's risk measurement process. The author specifically discusses what should be included at both the strategy and portfolio level.

Type: Working paper
Date: le 05/09/2005
Research Cluster : Finance

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