Calibration and filtering for multi factor commodity models with seasonality: incorporating panel data from futures contracts
AbstractWe examine a general multi-factor model for commodity spot prices and futures valuation. We extend the multi-factor long-short model in Schwartz and Smith (2000) and Yan (2002) in two important aspects: firstly we allow for both the long and short term dynamic factors to be mean reverting incorporating stochastic volatility factors and secondly we develop an additive structural seasonality model. Then a Milstein discretized non-linear stochastic volatility state space representation for the model is developed which allows for futures and options contracts in the observation equation. We then develop numerical methodology based on an advanced Sequential Monte Carlo algorithm utilising Particle Markov chain Monte Carlo to perform calibration of the model jointly with the filtering of the latent processes for the long-short dynamics and volatility factors. In this regard we explore and develop a novel methodology based on an adaptive Rao-Blackwellised version of the Particle Markov chain Monte Carlo methodology. In doing this we deal accurately with the non-linearities in the state-space model which are therefore introduced into the filtering framework. We perform analysis on synthetic and real data for oil commodities.
Download InfoIf 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.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1105.5850.
Date of creation: May 2011
Date of revision:
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Back, Janis & Prokopczuk, Marcel & Rudolf, Markus, 2013. "Seasonality and the valuation of commodity options," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(2), pages 273-290.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.