I've been tasked to calculate/forecast the weighted exposure of a financial product. I work with bunker prices and we have access to bunker future prices everyday. They look similar to this in an excel sheet:
Prices of futures on 1st Feb 2024
Feb 2024 - $120
Mar 2024 - $110
Apr 2024 - $108
...
Jan 2027 - $70
I have access to similar prices on 2nd Feb, 3rd Feb, ... to current date. Each file has the same format prices.
I'm trying to understand how I can use these prices to come up with some sort of weighted price change indication.
For example: Price on 1st Feb 2024
This image shows the prices plotted out on a line graph. Price of June 2024 = $100 and price of Jan 2027 = $70.
Similarly, on Price on 31st Feb 2024, the price of June 2024 = $90 and price of Jan 2027 = $69.
This indicates that there is a BIGGER CHANGE when the future dates are closer to current day and smaller when further. i.e. A dollar change in today's prices will only result in a $0.10 change in a much further future price. Nearer changes can be seen to have a 100% effect but further changes only a fraction of it.
See this image to look at the price comparisons on earlier vs later dates
What is this concept exactly and how can I use the different prices obtained everyday to come up with something like a weight for each month similar to this:
Feb 2024 - 100%
Mar 2024 - 99.92%
Apr 2024 - 99.75%
...
Jan 2027 - 80%
Feb 2027 - 79.95%
...
Eventually I want to use the weighted percentages from 2024 to 2028 to FORECAST up to 2034.
WHAT IS THIS CONCEPT? I tried my best to describe it to chatgpt/google and I see 'Time Weighted Decay' but Im not sure. Please send help.