A Stochastic Control Approach to Futures Trading with Regime Switching

We study the problem of dynamically trading futures in a regime-switching market. Modeling the spot asset price as a Markov-modulated diffusion process, we derive the no-arbitrage price dynamics for the futures contracts and formulate a continuous-time trading problem. By analyzing the associated system of Hamilton-Jacobi-Bellman (HJB) equations, we solve for the investor's value function and optimal strategies. We apply our methodology to the Regime-Switching Exponential Ornstein-Uhlenbeck (RS-XOU) model and provide numerical examples to illustrate the investor's optimal positions and wealth process.