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The dynamics of commodity prices

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  • CHRIS BROOKS
  • MARCEL PROKOPCZUK

Abstract

In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties with those of the equity market. we observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

Suggested Citation

  • Chris Brooks & Marcel Prokopczuk, 2013. "The dynamics of commodity prices," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 527-542, March.
  • Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:527-542
    DOI: 10.1080/14697688.2013.769689
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