A profit model for spread trading with an application to energy futures

This paper proposes a profit model for spread trading by focusing on the stochastic movement of the price spread and its first hitting time probability density. The model is general in that it can be used for any financial instrument. The advantage of the model is that the profit from the trades can be easily calculated if the first hitting time probability density of the stochastic process is given. We then modify the profit model for a particular market, the energy futures market. It is shown that energy futures spreads are modeled by using a meanreverting process. Since the first hitting time probability density of a mean-reverting process is approximately known, the profit model for energy futures price spreads is given in a computable way by using the parameters of the process. Finally, we provide empirical evidence for spread trades of energy futures by employing historical prices of energy futures (WTI crude oil, heating oil, and natural gas futures) traded on the New York Mercantile Exchange. The results suggest that natural gas futures trading may be more profitable than WTI crude oil and heating oil due to its high volatility in addition to its long-term mean reversion, which offers supportive evidence of the model prediction. --futures spread trading,energy futures markets,mean-reverting process,first hitting,time probability density,profit model,WTI crude oil,heating oil,natural gas

On the proportions of soluble forms in some families of locally soluble binary quartic forms

An integral binary quartic form is said to be locally soluble (resp. soluble) if the corresponding genus one curve has a rational point over $\mathbb{Q}_v$ for every place $v$ of $\mathbb{Q}$ (resp. over $\mathbb{Q}$). We consider the proportion of soluble integral binary quartic forms in locally soluble forms. Bhargava showed the proportion is positive when one considers all binary quartics, and Bhargava--Ho proved the proportion is zero for a subfamily. In this paper, we estimate the proportions for some other subfamilies. It relies on results for elliptic curves $y^2=x^3-n^2x$ by Heath-Brown, Xiong--Zaharescu and Smith.Comment: 15 page

Development of a quasi-solid composite electrolyte for 3D-structured batteries

The development of lithium-ion batteries has been carried out in a layer-by-layer configuration, in which an electrolyte layer is sandwiched with anode and cathode layers

Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power

This paper studies volumetric risk hedging strategies for solar power under incomplete market settings with a twofold proposal of temperature-based and solar power generation-based models for solar power derivatives and discusses the basis risk arising from solar power volumetric risk hedge with temperature. Based on an indirect modeling of solar power generation using temperature and a direct modeling of solar power generation, we design two types of call options written on the accumulated non cooling degree days (ANCDDs) and the accumulated low solar power generation days (ALSPGDs), respectively, which can hedge cool summer volumetric risk more appropriately than those on well-known accumulated cooling degree days. We offer the pricing formulas of the two options under the good-deal bounds (GDBs) framework, which can consider incompleteness of solar power derivative markets. To calculate the option prices numerically, we derive the partial differential equations for the two options using the GDBs. Empirical studies using Czech solar power generation and Prague temperature estimate the parameters of temperature-based and solar power generation-based models, respectively. We numerically calculate the call option prices on ANCDDs and ALSPGDs, respectively, as the upper and lower price boundaries using the finite difference method. Results show that the call option prices based on a solar power generation process are bigger than the call option prices based on a temperature process. This is consistent with the fact that the solar power generation approach takes into account more comprehensive risk than the temperature approach, resulting in the bigger prices for the solar power generation approach. We finally show that the basis risk premiums, i.e., solar power generation-based call option prices minus temperature-based call option prices, decrease in line with initial temperature greater than around 25 ◦C. This may be because the uncertainty in solar power generation by temperature decreases due to the cancellation between the increase in solar power generation due to the increase in solar radiation and the decrease in solar power generation due to the decrease in solar panel efficiency

Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power

This paper studies volumetric risk hedging strategies for solar power under incomplete market settings with a twofold proposal of temperature-based and solar power generation-based models for solar power derivatives and discusses the basis risk arising from solar power volumetric risk hedge with temperature. Based on an indirect modeling of solar power generation using temperature and a direct modeling of solar power generation, we design two types of call options written on the accumulated non cooling degree days (ANCDDs) and the accumulated low solar power generation days (ALSPGDs), respectively, which can hedge cool summer volumetric risk more appropriately than those on well-known accumulated cooling degree days. We offer the pricing formulas of the two options under the good-deal bounds (GDBs) framework, which can consider incompleteness of solar power derivative markets. To calculate the option prices numerically, we derive the partial differential equations for the two options using the GDBs. Empirical studies using Czech solar power generation and Prague temperature estimate the parameters of temperature-based and solar power generation-based models, respectively. We numerically calculate the call option prices on ANCDDs and ALSPGDs, respectively, as the upper and lower price boundaries using the finite difference method. Results show that the call option prices based on a solar power generation process are bigger than the call option prices based on a temperature process. This is consistent with the fact that the solar power generation approach takes into account more comprehensive risk than the temperature approach, resulting in the bigger prices for the solar power generation approach. We finally show that the basis risk premiums, i.e., solar power generation-based call option prices minus temperature-based call option prices, decrease in line with initial temperature greater than around 25 ◦C. This may be because the uncertainty in solar power generation by temperature decreases due to the cancellation between the increase in solar power generation due to the increase in solar radiation and the decrease in solar power generation due to the decrease in solar panel efficiency

Ionic liquid-containing cathodes empowering ceramic solid electrolytes

Although ceramic solid electrolytes, such as Li7La3Zr2O12 (LLZO), are promising candidates to replace conventional liquid electrolytes for developing safe and high-energy-density solid-state Li-metal batteries, the large interfacial resistance between cathodes and ceramic solid electrolytes severely limits their practical application. Here we developed an ionic liquid (IL)-containing while nonfluidic quasi-solid-state LiCoO2 (LCO) composite cathode, which can maintain good contact with an Al-doped LLZO (Al-LLZO) ceramic electrolyte. Accordingly the interfacial resistance between LCO and Al-LLZO was significantly decreased. Quasi-solid-state LCO/Al-LLZO/Li cells demonstrated relatively high capacity retention of about 80% after 100 cycles at 60°C. The capacity decay was mainly because of the instability of the IL. Nevertheless, the IL-containing LCO cathode enabled the use of Al-LLZO as a solid electrolyte in a simple and practical way. Identifying a suitable IL is critical for the development of quasi-solid-state Li-metal batteries with a ceramic solid electrolyte

Examining risk and return profiles of renewable energy investment in developing countries: The Case of the Philippines

This paper examines the risk and return profiles of energy companies with renewable energy (RE) investment in developing countries taking the Philippines as our country case study. First, we analyze the impact of the global RE project specific risk and country risk on RE projects using a simple capital asset pricing model (CAPM) by benchmarking stock returns of these companies to either the global S&P (S&PGCE) index or to the local Philippine Stocks Exchange (PSE) index. Our findings show that on short- and mid- to long term investment interval, a “pure” RE company, the Energy Development Corporation (EDC), is affected by both these risks examined, while those with partial investment in renewables are affected only on the short-term. Next, we calculated these companies’ abnormal returns by using the Jensen’s alpha. Results show that EDC's alpha values are positive on all short- and medium-to-long term investments and on both indices, suggesting that Philippine RE companies are possibly underestimated on both the global RE market and the Philippine stock market. Lastly, we examined the latest Feed-in Tariff (FIT) level by using the beta results of EDC and the FIT structure of solar PV. Results show that the FIT rate generates profit to both the global and local RE companies’ risk and returns from the investors’ perspective, but is higher than the desired FIT rate from the policymakers’ perspective. This paper aids in investment decision-making by showing that differences in investment timeframes and RE shares could impact investment outcomes in developing countries