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Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans

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Author Info
Richter, Martin (Finansbanken)
Sørensen, Carsten (Department of Finance, Copenhagen Business School)
Abstract

This 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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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7179
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Publisher Info
Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2002-4.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 47 pages
Date of creation: 01 Jun 2002
Date of revision:
Handle: RePEc:hhs:cbsfin:2002_004

Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Email:
Web page: http://www.cbs.dk/departments/finance/
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Related research
Keywords: 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:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July. [Downloadable!] (restricted)
  3. Bryan R. Routledge & Duane J. Seppi & Chester S. Spatt, 2000. "Equilibrium Forward Curves for Commodities," Journal of Finance, American Finance Association, vol. 55(3), pages 1297-1338, 06. [Downloadable!] (restricted)
    Other versions:
  4. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179. [Downloadable!] (restricted)
  5. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(1), pages 69-107. [Downloadable!] (restricted)
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  7. Bessembinder, Hendrik, et al, 1995. " Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure," Journal of Finance, American Finance Association, vol. 50(1), pages 361-75, March. [Downloadable!] (restricted)
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    Other versions:
  11. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(4), pages 687-720.
  12. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December. [Downloadable!] (restricted)
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  22. repec:cup:cbooks:9780521326162 is not listed on IDEAS
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  28. Hannan, E J & Terrell, R D & Tuckwell, N E, 1970. "The Seasonal Adjustment of Economic Time Series," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(1), pages 24-52, February. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zulauf, Carl R. & Zhou, Haijiang & Roberts, Matthew C., 2005. "Updating the Estimation of the Supply of Storage Model," 2005 Annual meeting, July 24-27, Providence, RI 19122, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Anders B. Trolle & Eduardo S. Schwartz, 2006. "Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives," NBER Working Papers 12744, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Rodriguez, J.C., 2007. "A Preference-Free Formula to Value Commodity Derivatives," Discussion Paper 2007-92, Tilburg University, Center for Economic Research. [Downloadable!]
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