IDEAS home Printed from https://ideas.repec.org/p/lvl/laeccr/0003.html
   My bibliography  Save this paper

On Jumps and Arch Effects in Natural Resource Prices. An Application to Stumpage Prices from Pacific Northwest National Forests

Author

Listed:
  • Saphores, Jean-Daniel
  • Khalaf, Lynda
  • Pelletier, Denis

Abstract

Models used for natural resources prices usually preclude the possibility of large changes (jumps) resulting from discrete, unexpected events. To test for the presence of jumps and ARCH effects, we propose to use bounds and bootstrap test techniques, thus solving the unidentified nuisance parameter problem. We apply this approach to stumpage price time series from the Pacific Northwest and find evidence of jumps and ARCH effects. Using real options, we then develop a stopping model to assess the impact of neglecting jumps on the decision to harvest old-growth timber. Our numerical results show the importance of modeling jumps explicitly.

Suggested Citation

  • Saphores, Jean-Daniel & Khalaf, Lynda & Pelletier, Denis, 2000. "On Jumps and Arch Effects in Natural Resource Prices. An Application to Stumpage Prices from Pacific Northwest National Forests," Cahiers de recherche 0003, Université Laval - Département d'économique.
    • Handle: RePEc:lvl:laeccr:0003
    as

    Download full text from publisher

    File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/2000/0003.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ball, Clifford A. & Torous, Walter N., 1983. "A Simplified Jump Process for Common Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 53-65, March.
    2. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
    3. B. Wade Brorsen & Seung-Ryong Yang, 1994. "Nonlinear Dynamics And The Distribution Of Daily Stock Index Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(2), pages 187-203, June.
    4. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    6. Ball, Clifford A & Torous, Walter N, 1985. "On Jumps in Common Stock Prices and Their Impact on Call Option Pricing," Journal of Finance, American Finance Association, vol. 40(1), pages 155-173, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian & Sebastien Mcmahon, 2008. "Forecasting commodity prices: GARCH, jumps, and mean reversion," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(4), pages 279-291.
    2. Khalaf, Lynda & Kichian, Maral, 2005. "Exact tests of the stability of the Phillips curve: the Canadian case," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 445-460, April.
    3. Khalaf, Lynda & Saphores, Jean-Daniel & Bilodeau, Jean-Francois, 2003. "Simulation-based exact jump tests in models with conditional heteroskedasticity," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 531-553, December.
    4. Hultkrantz, Lars & Andersson, Linda & Mantalos, Panagiotis, 2014. "Stumpage prices in Sweden 1909–2012: Testing for non-stationarity," Journal of Forest Economics, Elsevier, vol. 20(1), pages 33-46.
    5. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian, 2004. "Structural Change and Forecasting Long-Run Energy Prices," Staff Working Papers 04-5, Bank of Canada.
    6. Andersson, Linda & Hultkrantz , Lars & Mantalos , Panagiotis, 2013. "Stumpage Prices in Sweden 1909-2011: Testing for Non-Stationarity," Working Papers 2013:1, Örebro University, School of Business.
    7. Lee, Yen-Hsien & Hu, Hsu-Ning & Chiou, Jer-Shiou, 2010. "Jump dynamics with structural breaks for crude oil prices," Energy Economics, Elsevier, vol. 32(2), pages 343-350, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    2. Jondeau, Eric & Rockinger, Michael, 2000. "Reading the smile: the message conveyed by methods which infer risk neutral densities," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 885-915, December.
    3. Bronka Rzepkowski, 2000. "The Expectations of Hong Kong Dollar Devaluation and Their Determinants," Working Papers 2000-04, CEPII research center.
    4. Frances Shaw & Finbarr Murphy & Fergal G. O’Brien, 2016. "Jumps in Euribor and the effect of ECB monetary policy announcements," Environment Systems and Decisions, Springer, vol. 36(2), pages 142-157, June.
    5. Askari, Hossein & Krichene, Noureddine, 2008. "Oil price dynamics (2002-2006)," Energy Economics, Elsevier, vol. 30(5), pages 2134-2153, September.
    6. Yan, Shu, 2011. "Jump risk, stock returns, and slope of implied volatility smile," Journal of Financial Economics, Elsevier, vol. 99(1), pages 216-233, January.
    7. Jondeau, E. & Rockinger, M., 1998. "Reading the Smile: The Message Conveyed by Methods Which Infer Risk Neutral," Working papers 47, Banque de France.
    8. Malz, Allan M., 1996. "Using option prices to estimate realignment probabilities in the European Monetary System: the case of sterling-mark," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 717-748, October.
    9. Ako Doffou & Jimmy E. Hilliard, 2001. "Pricing Currency Options Under Stochastic Interest Rates And Jump-Diffusion Processes," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 565-585, December.
    10. Kaehler, Jürgen & Marnet, Volker, 1993. "Markov-switching models for exchange-rate dynamics and the pricing of foreign-currency options," ZEW Discussion Papers 93-03, ZEW - Leibniz Centre for European Economic Research.
    11. Kozarski, R., 2013. "Pricing and hedging in the VIX derivative market," Other publications TiSEM 221fefe0-241e-4914-b6bd-c, Tilburg University, School of Economics and Management.
    12. Christina Nikitopoulos-Sklibosios, 2005. "A Class of Markovian Models for the Term Structure of Interest Rates Under Jump-Diffusions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6, July-Dece.
    13. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    14. Oliver X. Li & Weiping Li, 2015. "Hedging jump risk, expected returns and risk premia in jump-diffusion economies," Quantitative Finance, Taylor & Francis Journals, vol. 15(5), pages 873-888, May.
    15. Moraux, Franck, 2004. "Modeling the business risk of financially weakened firms: A new approach for corporate bond pricing," International Review of Financial Analysis, Elsevier, vol. 13(1), pages 47-61.
    16. Chris Brooks & Marcel Prokopczuk, 2013. "The dynamics of commodity prices," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 527-542, March.
    17. Mr. Noureddine Krichene, 2006. "Recent Dynamics of Crude Oil Prices," IMF Working Papers 2006/299, International Monetary Fund.
    18. Andrew Ziogas & Carl Chiarella, 2003. "McKean’s Method applied to American Call Options on Jump-Diffusion Processes," Computing in Economics and Finance 2003 39, Society for Computational Economics.
    19. Andrew Ziogas, 2005. "Pricing American Options Using Fourier Analysis," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2005.
    20. Andrew Ziogas & Carl Chiarella, 2004. "Pricing American Options on Jump-Diffusion Processes using Fourier-Hermite Series Expansions," Computing in Economics and Finance 2004 177, Society for Computational Economics.

    More about this item

    Keywords

    Jump processes; ARCH; Bootstrap; Stumpage prices; Real options;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:laeccr:0003. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuel Paradis (email available below). General contact details of provider: https://edirc.repec.org/data/delvlca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.