Hoekstra Trading “D4T” Theoretical RIN Price
Hoekstra Trading’s “D4T” value is the calculated theoretical price of a D4 RIN using an equation published by Scott Irwin, Kristen McCormack, and James H. Stock (IMS) in 2020. It is a theoretical, not a market value, that is calculated using Hoekstra Trading’s best estimate of the values of the variables and parameters of the equation.
The main variable is a stochastic price spread that depends on the prices of ultra-low sulfur diesel (ulsd) and the incremental biobased diesel that is displacing ulsd from the diesel fuel supply. The biodiesel tax credit, and uncertainty about its future status, are also accounted for. There are 4 model parameters:
- Standard deviation of the spread between the prices of ultra-low sulfur diesel and the energy equivalent price of the biofuel that displaces it.
- Probability the blender’s tax credit will stay in effect, given it is in effect today.
- Probability the blender’s tax credit will remain not in effect, given it is not in effect today.
- The reference risk-free rate of return.
The published price uses Hoekstra Trading’s best estimate of the weekly values of the input prices and parameters, and is calculated for a hypothetical RIN with 1 year remaining life before expiration.
The Hoekstra ATTRACTOR spreadsheet calculates D4T and displays it along with actual market prices and is available to anyone for use in studying and interpreting RIN price behavior as a function of the variables and parameters that affect the RIN price.
Get the ATTRACTOR spreadsheet! Here’s the offer letter.
