Industry Talk: Using the Signature Method to Classify Commodities and Select Commodity Options Strategies

Join Hari Krishnan to see how the signature method helps a random forest model identify storable vs. non-storable commodities from price data, revealing market insights and strategy options.

13:00 EST / 18:00 GMT / 19:00 CEST

Abstract:

Can we distinguish between various commodities markets purely based on the time series of their prices? In this talk, we use the signature method (related to rough path theory) to construct features for a random forest that distinguishes between storable and non-storable commodities with a high degree of accuracy. It turns out that, in the same way that machines can identify dogs in digital images, price formation in a given market has certain tell tale signs. This is true even if we normalize according to volatility. These insights allow us to explain why certain standard options strategies work relatively well in some commodities markets, yet underperform in others.

This research was performed jointly with Professor Stephan Sturm at WPI and 3 students, Tora Ito, Adam Mullaney and Kathleen Shiffer.

About the Speaker:

Hari P. Krishnan is Head of Volatility Strategies at SCT Capital, a New York based hedge fund. He is the author of The Second Leg Down (Wiley, 2017) and Market Tremors (Springer/Palgrave McMillan 2021). He has roughly 25 years of experience in financial markets, including portfolio management roles at CrossBorder Capital and Morgan Stanley and holds a PhD in applied math from Brown University.