Prognoses for a Non-Predictable Discounted Commodity Price Process
AbstractWe consider the behavior of the price of a continuously stored commodity, for which discounted price is a non-constant martingale, and thus not-predictable. We prove that the discounted price realization is within any given neighborhood of zero, with any given probability less than 1, beyond a finite state-independent horizon. Furthermore, with probability 1, the path of discounted price realizations will lie permanently within any given neighborhood of zero beyond a finite state-dependent horizon. The martingale property implies that for a sufficiently long series of initial dates, the average of returns over a given horizon approximates the opportunity cost of capital arbitrarily exactly. But the average of returns for the same initial dates, over a sufficiently extended horizon, reflects the eventual and permanent downward divergence of price realizations from any profile of conditional expectations.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 19.
Date of creation: 11 Aug 2004
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Non-Predictable; Price; Speculation;
Find related papers by JEL classification:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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