Abstract
We study the problem of dynamically trading futures in continuous time under a multifactor Gaussian framework. We present a utility maximization approach to determine the optimal futures trading strategy. This leads to the explicit solution to the Hamilton-Jacobi-Bellman (HJB) equations. We apply our stochastic framework to two-factor models, namely, the Schwartz model and Central Tendency Ornstein-Uhlenbeck (CTOU) model. We also develop a multiscale CTOU model, which has a fast mean-reverting and a slow mean-reverting factor in the spot asset price dynamics. Numerical examples are provided to illustrate the investor's optimal positions for different futures portfolios.
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