Negative Oil & Nickel Squeeze: A Feedback Model for Extreme Commodity Futures Prices

Battle Count: 50

Highly relevant for traders dealing with commodity futures, particularly those exposed to front-month contracts near expiration. It provides a theoretical framework for understanding and potentially predicting extreme price dislocations caused by forced liquidations, which is critical for risk management and strategy adjustment during market stress.

The core pricing formulas are explicit and relatively simple to implement (standard option formulas plus a scalar root-finding step). However, calibrating the model requires estimating the benchmark price, volatility, and the imbalance parameter, which involves significant judgment and data processing.

The paper provides explicit analytical formulas and detailed parameter inputs for the WTI and Nickel case studies. However, it relies on specific historical data (Bloomberg) and assumptions about benchmark prices and volatility that are not fully standardized in a public code repository.