Yield Curve Modeling and Commodities | Hanlon Financial Systems Center

Yield Curve Modeling and Commodities

Yield Curve Modeling and Commodities

seminar date: 
Thursday, February 5, 2015 - 5:00pm
seminar location: 
Kamyar Neshvadian, Highbridge Capital Management

Recent events in commodity markets have renewed interest in precise commodity term-structure modeling.

Commodity indices providing investors with exposure through futures markets traditionally roll their positions just prior to maturity to contracts with the next expiry date. With the development of contango in energy markets, market participants attempt to optimize their exposure by looking further out to determine the contract to roll into. These strategies attempt to maximize positive roll-return in backwardated markets and minimize losses during periods of contango.

Whether to develop or simply evaluate these innovative funds, it is imperative that one understand the dynamic nature of the commodity forward curve. The Nelson-Siegel (N-S) model for the yield curve, first proposed in 1987, provides us with a simple characterization that also has the flexibility to span the space of typical yield curve shapes.  This framework, equally popular among practitioners and central banker bankers,irst introduced to describe snapshots of the curve, but has since proved to be useful in identifying the three most significant factors, level, slope and curvature, that describe curve-dynamics. The model has also been found to deliver superior forecasting performance, particularly at medium and long horizons.

The final missing link that establishes this methodology as a corner stone of fixed-incomemodeling is discussed in the recent work by Christensen who show that a modified version of the dynamic N-S framework can be cast as an arbitrage-free affine term-structure model, thus classifying it in a family that has been studied extensively in the theoretical literature on financial economics. In this paper, we adopt the N-S methodology to model the time-evolution ofcommodity futures prices.


Mr. Neshvadian has over 8 years of experience in financial industry in various capacities. He was a member of portfolio management team of Global Macro strategy in Highbridge Capital Management (HCM), a subsidiary of JP Morgan Asset Management. Since 2014 he has joined Q-Squared Capital as the head of fixed income strategies and oversees trading in Global Macro space. Mr. Neshvadian has developed, implemented and traded proprietary quantitative systematic strategies in all major asset classes, including fixed income, equities and commodities. He was the key person in portfolio management team, responsible to manage all trading and operational aspect of Highbridge-JP Morgan commodity mutual fund. At its peak, the fund had more than $3.5 billion assets under management. Before joining HCM he was in Al-Muhaidib/ Noor Group where he worked for two years as a business development manager focusing on private equity investments. Mr.Neshvadian is also a board member and chief financial officer of NomoCan Pharmaceuticals, a startup company founded in 2014 to develop a pancreatic cancer drug. Mr. Neshvadian received an M.S. in Financial Engineering from New York University. He also holds a B.S. and a M.S. in Industrial Engineering and System Analysis from Sharif University of Technology. In addition, he received a Financial Risk Manager certification in March 2010.