Advanced Search
MyIDEAS: Login

Modeling global and local dependence in a pair of commodity forward curves with an application to the US natural gas and heating oil markets

Contents:

Author Info

  • Ohana, Steve
Registered author(s):

    Abstract

    The goal of this paper is to present a model for the joint evolution of correlated commodity forward curves. Each forward curve is directed by two state variables, namely slope and level, and the model is meant to capture both the local and global dependence structures between slopes and levels. Our framework can be interpreted as an extension of the concept of cointegration to forward curves. The model is applied to a US database of heating oil and natural gas futures prices over the period February 2000-February 2009. We find the long-run slope and level relationships between natural gas and heating oil markets, analyze the lead and lag properties between the two energy commodities, the volatilities and correlations between their daily co-movements and evaluate the robustness of these observations to the turmoil experienced by energy markets since 2003.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/B6V7G-4X4Y264-2/2/80a52db3253fbdebe83b63b36fa9065a
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 32 (2010)
    Issue (Month): 2 (March)
    Pages: 373-388

    as in new window
    Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:373-388

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/eneco

    Related research

    Keywords: Commodity forward curves Cross-commodity portfolios Heating oil Natural gas Cointegration;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Serletis, Apostolos & Rangel-Ruiz, Ricardo, 2004. "Testing for common features in North American energy markets," Energy Economics, Elsevier, vol. 26(3), pages 401-414, May.
    2. Sean D. Campbell & Francis X. Diebold, 2002. "Weather Forecasting for Weather Derivatives," Center for Financial Institutions Working Papers 02-42, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Geman, Hélyette & Ohana, Steve, 2009. "Forward curves, scarcity and price volatility in oil and natural gas markets," Energy Economics, Elsevier, vol. 31(4), pages 576-585, July.
    4. Peter R. Hartley & Kenneth B Medlock III & Jennifer E. Rosthal, 2008. "The Relationship of Natural Gas to Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 47-66.
    5. Eduardo Schwartz & James E. Smith, 2000. "Short-Term Variations and Long-Term Dynamics in Commodity Prices," Management Science, INFORMS, vol. 46(7), pages 893-911, July.
    6. van den Goorbergh, Rob W.J. & Genest, Christian & Werker, Bas J.M., 2005. "Bivariate option pricing using dynamic copula models," Insurance: Mathematics and Economics, Elsevier, vol. 37(1), pages 101-114, August.
    7. Stephen P. A. Brown & Mine K. Yucel, 2008. "What Drives Natural Gas Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 45-60.
    8. Guillaume L'Hegaret & Boriss Siliverstovs & Christian von Hirschhausen, 2004. "International Market Integration for Natural Gas? A Cointegration Analysis of Prices in Europe, North America and Japan," Working Papers 0402, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    9. Serletis, Apostolos & Herbert, John, 1999. "The message in North American energy prices," Energy Economics, Elsevier, vol. 21(5), pages 471-483, October.
    10. Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, vol. 24(6), pages 525-538, November.
    11. Frank Asche & Petter Osmundsen & Maria Sandsmark, 2006. "The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 27-40.
    12. Mu, Xiaoyi, 2007. "Weather, storage, and natural gas price dynamics: Fundamentals and volatility," Energy Economics, Elsevier, vol. 29(1), pages 46-63, January.
    13. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-73, July.
    14. Ng, Victor K & Pirrong, Stephen Craig, 1994. "Fundamentals and Volatility: Storage, Spreads, and the Dynamics of Metals Prices," The Journal of Business, University of Chicago Press, vol. 67(2), pages 203-30, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:373-388

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.