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Analysis of the risk premium in the forward market for salmon

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  • Benth, Fred Espen
  • Eikeset, Anne Maria
  • Levin, Simon Asher
  • Ren, Wanjuan

Abstract

We analyse forward prices observed at the Fishpool market, and propose a two-factor continuous-time stochastic process for modelling the time dynamics. The data analysis reveals that the two factors can be assumed to be a non-stationary compound Poisson process and a stationary continuous-time autoregressive dynamics, describing the bumps observed in the forward curves. We use the model to analyse the risk premium in the forward markets, and find a negative premium in the long end of the market which is in line with the theory of normal backwardation. However, contracts with short time to maturity have a risk premium with randomly changing sign, pointing towards a hedging pressure also induced by the demand-side of the market.

Suggested Citation

  • Benth, Fred Espen & Eikeset, Anne Maria & Levin, Simon Asher & Ren, Wanjuan, 2021. "Analysis of the risk premium in the forward market for salmon," Journal of Commodity Markets, Elsevier, vol. 21(C).
    • Handle: RePEc:eee:jocoma:v:21:y:2021:i:c:s240585131930087x
    DOI: 10.1016/j.jcomm.2019.100122
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    References listed on IDEAS

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