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15 Apr 08
Author: John Breslin, Les Clewlow, C Kwok, Chris Strickland
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In this article we describe the use of the multi-factor multi-commodity (MFMC) model in determining the optimal location for shipping a cargo, specifically the delivery of LNG. The MFMC model is able to capture the complex movements in forward prices that are difficult to capture using a single factor model, as well as correlations between different commodities.
The MFMC model is well suited to this type of analysis since it involves consideration of the commodity price at a number of locations, and we can consider each of these prices as describing separate but correlated commodities.
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