An ODE for predicting mol prices
April 24, 2011 Leave a comment
An ambitious young feller could make a good living trading molybdenum if he knew just where the price of mol was headed. The problem, of course, is that the price of molybdenum shows odd fluctuations and is not particularly easy to predict. Here’s the trajectory (as charted by the London Metal Exchange) for the first three months of 2011.
My working hypothesis is that molybdenum prices can potentially be predicted with some degree of accuracy in advance, and that construction of a successful model is less daunting than would be the case for larger, more complicated commodities such as oil, gold and wheat. Fred Adams visited the office last month, and we took a crack at an initial formulation at a governing ordinary differential equation:
In the above, P is the mol spot price, D is worldwide demand, and S is worldwide supply. The last term on the right hand side is a stochastic forcing term — no crystal ball is perfect!
More explanation is, of course, in order. Stay tuned.