Advanced Search
MyIDEAS: Login to save this paper or follow this series

Commodity derivatives pricing with inventory effects

Contents:

Author Info

  • Christian Bach

    ()
    (Aarhus University and CREATES)

  • Matt P. Dziubinski

    ()
    (Aarhus University and CREATES)

Abstract

We introduce tractable models for commodity derivatives pricing with inventory and volatility eects, and illustrate with applications to the oil market. We contribute to the existing literature in several respects. First, whereas the previous literature uses futures data for investigating the relationship between inventory and volatility, we use the information available in options traded on futures. Second, performance assessment in the previous literature has primarily evolved around explaining moments of data or forecasting prices of futures. Instead, we asses the performance of our model by considering both the ability of explaining prices in-sample and out-of-sample - assessing both the pricing-performance and the hedging-performance of the models. Third, we model the futures surface rather than the spot price process, and from the no-arbitrage relationship between spot and futures prices we limit the number of parameters to calibrate. We introduce a new, maturity-wise calibration method compatible with this modeling methodology. Fourth, we use actual data on inven- tories rather than a proxy. Fifth, our model is very exible and allows for testing several dierent types of relationships between inventory and volatility.

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: ftp://ftp.econ.au.dk/creates/rp/12/rp12_06.pdf
Download Restriction: no

Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2012-06.

as in new window
Length: 70
Date of creation: 07 Feb 2012
Date of revision:
Handle: RePEc:aah:create:2012-06

Contact details of provider:
Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Energy futures and options markets; energy price volatility; commodities; crude oil; stochastic volatility; stochastic inventories; inventories; option pricing; scarcity.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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

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:aah:create:2012-06. 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: ().

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.