Advanced Search
MyIDEAS: Login to save this article or follow this journal

Short-Term Variations and Long-Term Dynamics in Commodity Prices

Contents:

Author Info

  • Eduardo Schwartz

    ()
    (Anderson Graduate School of Management, University of California, Los Angeles, Los Angeles, California 90095-1481)

  • James E. Smith

    ()
    (Fuqua School of Business, Duke University, Durham, North Carolina 27708-0120)

Registered author(s):

    Abstract

    In this article, we develop a two-factor model of commodity prices that allows meanreversion in short-term prices and uncertainty in the equilibrium level to which prices revert. Although these two factors are not directly observable, they may be estimated from spot and futures prices. Intuitively, movements in prices for long-maturity futures contracts provide information about the equilibrium price level, and differences between the prices for the short- and long-term contracts provide information about short-term variations in prices. We show that, although this model does not explicitly consider changes in convenience yields over time, this short-term/long-term model is equivalent to the stochastic convenience yield model developed in Gibson and Schwartz (1990). We estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil-linked assets to demonstrate its use and some of its advantages over the Gibson-Schwartz model.

    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://dx.doi.org/10.1287/mnsc.46.7.893.12034
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 46 (2000)
    Issue (Month): 7 (July)
    Pages: 893-911

    as in new window
    Handle: RePEc:inm:ormnsc:v:46:y:2000:i:7:p:893-911

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: commodity prices; real options; stochastic dynamic model;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

    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:inm:ormnsc:v:46:y:2000:i:7:p:893-911. See general information about how to correct material in RePEc.

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

    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.