dppi: Dynamic Proportion Portfolio Insurance (DPPI)

In sleire/etrm: Energy Trading and Risk Management

Dynamic Proportion Portfolio Insurance (DPPI)

Description

Implements DPPI strategy for commodity price risk management

Usage

dppi(q, tdate, f, tper, rper, tcost = 0, int = TRUE)

Arguments

q	numeric value for quantity to be hedged, either positive (net buyer) or negative (net seller)
tdate	date vector with trading days
f	numeric futures price vector
tper	numeric target price factor, markup/down to the price on the first trading day
rper	numeric risk factor as a percentage of the price on the first trading day
tcost	numeric transaction costs pr unit
int	TRUE/FALSE integer restriction on tradable volume

Value

instance of the DPPI class

Examples

# DPPI for a buyer (seller), where stop loss is set 10% above (below) initial market price.

set.seed(5)
# GBM price process parameters
mu <- 0.2
sigma <- 0.1
S0 <- 100

# time
Y <- 2
N <- 500
delta <- Y/N
t <- seq (0, 1, length = N + 1)

# price process and date vector
W <- c(0, cumsum ( sqrt(delta) * rnorm (N)))
f_gbm <- S0 * exp(mu * t + sigma * W)
tr_dates <- seq(Sys.Date(), Sys.Date()+500, by = "day")

# implement dppi strategy for buyer
dppi_b <- dppi(q = 10,
tdate = tr_dates,
f = f_gbm,
tper = 0.1,
rper = 0.1,
tcost = 0,
int = TRUE)

# implement dppi strategy for seller
dppi_s <- dppi(q = - 10,
tdate = tr_dates,
f = f_gbm,
tper = - 0.1,
rper = 0.1,
tcost = 0,
int = TRUE)

sleire/etrm documentation built on Feb. 5, 2023, 9:02 a.m.