Time Delay and Noise Explaining Cyclical Fluctuations in Prices of Commodities

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Time Delay and Noise Explaining Cyclical Fluctuations in Prices of Commodities

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Uwe Küchler (Humboldt University)
Eckhard Platen () (School of Finance and Economics, University of Technology, Sydney)

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Eckhard Platen

Abstract

This paper suggests to model jointly time delay and random effects in economics and finance. It proposes to explain the random and often cyclical fluctuations in commodity prices as a consequence of the interplay between external noise and time delays caused by the time between initiation of production and delivery. The proposed model is formulated as a stochastic delay differential equation. The typical behavior of a commodity price index under this model will be discussed. Methods for parameter estimation and the evaluation of functionals will be proposed.

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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 195.

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Length: 23
Date of creation: 01 Apr 2007
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Handle: RePEc:uts:rpaper:195

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-05-19 (All new papers)

References listed on IDEAS
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Uwe Kuchler & Eckhard Platen, 2000. "Strong Discrete Time Approximation of Stochastic Differential Equations with Time Delay," Research Paper Series 44, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Other versions:
- U. Küchler & E. Platen, . "Strong discrete time approximation of Stochastic Differential Equations with Time Delay," Sonderforschungsbereich 373 1999-25, Humboldt Universitaet Berlin.
Uwe Kuchler & Eckhard Platen, 2001. "Weak Discrete Time Approximation of Stochastic Differential Equations with Time Delay," Research Paper Series 50, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
Other versions:
- U. Küchler & E. Platen, . "Weak Discrete Time Approximation of Stochastic Differential Equations with Time Delay," Sonderforschungsbereich 373 2001-30, Humboldt Universitaet Berlin.
Mackey, Michael C., 1989. "Commodity price fluctuations: Price dependent delays and nonlinearities as explanatory factors," Journal of Economic Theory, Elsevier, vol. 48(2), pages 497-509, August. [Downloadable!] (restricted)

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