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The dynamics of commodity prices

  • CHRIS BROOKS
  • MARCEL PROKOPCZUK

In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties with those of the equity market. we observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

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File URL: http://hdl.handle.net/10.1080/14697688.2013.769689
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Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 13 (2013)
Issue (Month): 4 (March)
Pages: 527-542

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Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:527-542
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