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Asymptotic Exponential Arbitrage in the Schwartz Commodity Futures Model

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  • Tesfamariam Tadesse Welemical
  • Jane Akinyi Aduda
  • Martin Le Doux Mbele Bidima

Abstract

In this paper, we consider the Schwartz’s one-factor model for a storable commodity and a futures contract on that commodity. We introduce the analysis of asymptotic arbitrage in storable commodity models by proving that the futures prices process allows asymptotic exponential arbitrage with geometric decaying failure probability. Next, we find by comparison that, under some similar conditions, our result is a corresponding commodity assets (stronger) version of Föllmer and Schachermayer’s result stated in the modeling setting of geometric Ornstein-Uhlenbeck process for financial security assets.

Suggested Citation

  • Tesfamariam Tadesse Welemical & Jane Akinyi Aduda & Martin Le Doux Mbele Bidima, 2019. "Asymptotic Exponential Arbitrage in the Schwartz Commodity Futures Model," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2019, pages 1-8, March.
    • Handle: RePEc:hin:jijmms:9450435
    DOI: 10.1155/2019/9450435
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