Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans
AbstractThis paper sets up and estimates a continuous-time stochastic volatility model using panel data of soybean futures and options in an integrated time-series study. The model of commodity price dynamics is within the class of affine asset pricing models, and option prices are determined using a standard inversion of characteristic func- tions approach. Our modeling acknowledges that commodities exhibit seasonality patterns in both spot price level and volatility. The estimation method is based on a state space formulation of the model and a quasi maximum likelihood approach. Es- timation results are obtained based on weekly observations of soybean futures prices and options prices from the Chicago Board of Trade in the period October 1984 to March 1999. The empirical results support the conceptual ideas in the theory of storage, but not the view that convenience yields behave like timing options.
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Bibliographic InfoPaper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2002-4.
Length: 47 pages
Date of creation: 01 Jun 2002
Date of revision:
Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Web page: http://www.cbs.dk/departments/finance/
More information through EDIRC
Commodity derivatives; stochastic volatility; seasonality; integrated time-series estimation;
Find related papers by JEL classification:
- C00 - Mathematical and Quantitative Methods - - General - - - General
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-13 (All new papers)
- NEP-CFN-2003-04-13 (Corporate Finance)
- NEP-ETS-2003-04-13 (Econometric Time Series)
- NEP-RMG-2003-04-13 (Risk Management)
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