Commodity price modelling that matches current observables: a new approach
We develop a stochastic model of the spot commodity price and the spot convenience yield such that the model matches the current term structure of forward and futures prices, the current term structure of forward and futures volatilities, and the inter-temporal pattern of the volatility of the forward and futures prices. We let the underlying commodity price be a geometric Brownian motion and we let the spot convenience yield have a mean-reverting structure. The flexibility of the model, which makes it possible to simultaneously achieve all these goals, comes from allowing the volatility of the spot commodity price, the speed of mean-reversion parameter, the mean-reversion parameter, and the diffusion parameter of the spot convenience yield all to be time-varying deterministic functions.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 3 (2003)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20 |
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:3:y:2003:i:1:p:51-58. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.