Understanding your exposure: Crack Representation

In risk modeling and systems context, positions are reported as swaps, namely, price exposure at vertices defined by commodity (or price curve) and month. In reality, unless one is betting on a fixed price movement, describing positions in cracks (including basis, differential, spread) is more convenient, especially when explaining trading strategies. In this article, I will introduce crack representation, conversion algorithm between swap and crack representation, and benefits of crack representation in risk modeling. Continue Reading in LinkedIn