IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v153y2026ics0140988325009053.html

A mean reverting affine GARCH model for commodities

Author

Listed:
  • Escobar-Anel, Marcos
  • Pan, Kaize
  • Stentoft, Lars

Abstract

We introduce a new discrete time model for commodity spot prices that integrates mean reversion with time varying volatility. Because of its affine structure, the model delivers closed-form moment-generating functions for spot prices and, with appropriate risk neutralization, a mean-reverting affine representation for future prices under both the historical and risk-neutral measures. This permits analytical pricing of derivatives on the spot and futures contracts. Estimation can be done with maximum likelihood, the reliability of which is confirmed in a simulation study using spot prices and spot and futures prices jointly. An empirical application reveals significant mean reversion and time-varying conditional variance in three selected commodities, and shows that using models without mean reversion or time varying volatility results in much lower fit in terms of likelihood and much larger futures pricing errors both in- and out-of-sample.

Suggested Citation

  • Escobar-Anel, Marcos & Pan, Kaize & Stentoft, Lars, 2026. "A mean reverting affine GARCH model for commodities," Energy Economics, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:eneeco:v:153:y:2026:i:c:s0140988325009053
    DOI: 10.1016/j.eneco.2025.109075
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325009053
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.109075?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    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:eee:eneeco:v:153:y:2026:i:c:s0140988325009053. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    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.