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Technical Note: Simulating the Two-Factor Schwartz and Smith Model of Commodity Prices

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  • Graham Davis

Abstract

Commodity price simulation is useful in many engineering economics applications, yet discrete approximations of the continuous stochastic processes used in modeling commodity prices are not always straightforward. This article describes the exact solution for discretely simulating the Schwartz and Smith (2000) two-factor model of commodity prices.

Suggested Citation

  • Graham Davis, 2012. "Technical Note: Simulating the Two-Factor Schwartz and Smith Model of Commodity Prices," The Engineering Economist, Taylor & Francis Journals, vol. 57(2), pages 130-140.
    • Handle: RePEc:taf:uteexx:v:57:y:2012:i:2:p:130-140
    DOI: 10.1080/0013791X.2012.677302
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    Cited by:

    1. Lena Kitzing & Christoph Weber, "undated". "Support mechanisms for renewables: How risk exposure influences investment incentives," EWL Working Papers 1403, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Aug 2014.
    2. Hahn, Warren J. & DiLellio, James A. & Dyer, James S., 2014. "What do market-calibrated stochastic processes indicate about the long-term price of crude oil?," Energy Economics, Elsevier, vol. 44(C), pages 212-221.
    3. Mehrdoust, Farshid & Noorani, Idin & Kanniainen, Juho, 2024. "Valuation of option price in commodity markets described by a Markov-switching model: A case study of WTI crude oil market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 215(C), pages 228-269.

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