Computer Simulation in Financial Risk Management: A Guide for Business Planners and Strategists

By Roy L. Nersesian | Go to book overview
Again, the two caveats still stand. What works on past data may not work on future data and market anomalies do not remain anomalous when everyone knows about them.
APPENDIX
There are two programs in this chapter. The OIL program evaluates three strategies. One is the "do-nothing" strategy of remaining solely in the futures and cash markets, selling futures only if their price is higher than the current price, and selling futures if their price is less than the current price of gasoline and heating oil. The OILINV program evaluates hedging operations in a falling and rising market environment.
OIL
The data base on prices, taken from the financial press, is stored in a DATAFF file and fed into the program in statements 30 to 50. Statements 70 to 120 evaluates the single strategy of remaining either fully committed to the cash or futures market. The array D(1,I) contains the cash price of heating oil; D(2,I), the two-month futures price of heating oil; D(3,I), the cash price of gasoline; D(4,I), the two-month futures price of gasoline; and D(5,I), the cash price of crude oil. All figures are in cents per gallon. The strategy of selling only in the futures market is measured by taking the cumulative total of the differences between the futures price of heating oil or gasoline and the crude price (statements 70-90) over the period of time under scrutiny. The strategy of selling only in the cash market is measured by taking the cumulative total of the differences between the cash price eight weeks in the future compared to the current price of crude oil over the same period of time (statements 100-120).Statements 130 to 240 examine the strategy of selling futures only when there is a positive (K > 0) difference between the futures price and the current price. This strategy does not generate any improvement over the cash-only strategy.Statements 250 to 710 evaluate the third strategy of bringing in the point of whether prices are higher or lower than they were W weeks before. Statements 300 and 370 measure the price difference for heating oil and gasoline, respectively. Rule 1, as described in the chapter, is contained in statements 310 to 330 for heating oil and statements 380 to 400 for gasoline. Rule 2 is carried out in statements 340 to 360 and statements 410 to 430 for heating oil and gasoline, respectively. Printouts are limited only to those instances where performance is better than the all-cash strategy, as determined in statements 650 to 700, or where a new record is established (statements 450-480).
10 REM NAME OF PROGRAM IS OIL
20 DIM D(5,200)
30 OPEN "I",#1, "DATAFF"
40 FOR I=1 TO 172:INPUT #1,D(1,I),D(2,I),D(3,I),D(4,I),D(5,I):NEXT
50 CLOSE #1
60 GOTO 250
70 PRINT:PRINT "STRATEGY OF 100% FUTURES NO CASH":PRINT
80 A=0:B=0:FOR I=1 TO 164:A=A+D(2,I)-D(5,I):B=B+D(4,I)-D(5,I):NEXT
90 PRINT "HEATING OIL:";A:PRINT "GASOLINE: ";B:PRINT:INPUT Z$
100 PRINT:PRINT "STRATEGY OF NO FUTURES 100% CASH":PRINT
110 A=0:B=0FOR I=1 TO 164:A=A+D(1,I+8)-D(5,I):B=B+D(3,I+8)-D(5,I):NEXT
120 PRINT "HEATING OIL:";A:PRINT "GASOLINE:";B:PRINT:INPUT Z$
130 FOR K=-2 TO 5 STEP .5

-220-

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Computer Simulation in Financial Risk Management: A Guide for Business Planners and Strategists
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Introduction ix
  • 1 - Bridging the Cultural Gap 1
  • 2 - A Businessman's Assessments 17
  • Appendix 47
  • 3 55
  • Appendix 81
  • 4 - The Loan Decision 85
  • Appendix 117
  • 5 - Self-Insuring a Loan Portfolio 123
  • Appendix 149
  • 6 - Determining the Safe Load of Debt 155
  • Appendix 193
  • 7 - Hedging and the Futures Market 199
  • Appendix 220
  • Index 223
  • About the Author 225
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