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Commodity Price Dynamics And Derivative Valuation: A Review

Author

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  • JANIS BACK

    (WHU – Otto Beisheim School of Management, 56179 Vallendar, Germany)

  • MARCEL PROKOPCZUK

    (Zeppelin University, 88045 Friedrichshafen, Germany;
    ICMA Centre, Henley Business School, University of Reading, RG6 6BA, UK)

Abstract

This paper reviews extant research on commodity price dynamics and commodity derivative pricing models. In the first half, we provide an overview of key characteristics of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second half, we review existing derivative pricing models and discuss how the peculiarities of commodity markets have been integrated in these models. We conclude the paper with a brief outlook on various important research questions that need to be addressed in the future.

Suggested Citation

  • Janis Back & Marcel Prokopczuk, 2013. "Commodity Price Dynamics And Derivative Valuation: A Review," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(06), pages 1-30.
    • Handle: RePEc:wsi:ijtafx:v:16:y:2013:i:06:n:s0219024913500325
    DOI: 10.1142/S0219024913500325
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    References listed on IDEAS

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    1. Arismendi, Juan C. & Back, Janis & Prokopczuk, Marcel & Paschke, Raphael & Rudolf, Markus, 2016. "Seasonal Stochastic Volatility: Implications for the pricing of commodity options," Journal of Banking & Finance, Elsevier, vol. 66(C), pages 53-65.
    2. Daskalaki, Charoula & Kostakis, Alexandros & Skiadopoulos, George, 2014. "Are there common factors in individual commodity futures returns?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 346-363.
    3. Acharya, Viral V. & Lochstoer, Lars A. & Ramadorai, Tarun, 2013. "Limits to arbitrage and hedging: Evidence from commodity markets," Journal of Financial Economics, Elsevier, vol. 109(2), pages 441-465.
    4. Richter, Martin & Sørensen, Carsten, 2002. "Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans," Working Papers 2002-4, Copenhagen Business School, Department of Finance.
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    Cited by:

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    2. David Batista Soares & Alain Bretto & Joël Priolon, 2019. "Efficiency and volatility of spot and futures agricultural markets: Impact of trade frequencies [Efficience et volatilité des marchés agricoles spot et à termes: L'impact de la fréquence des transa," Working Papers hal-02364549, HAL.
    3. Asche, Frank & Misund, Bård & Oglend, Atle, 2016. "Determinants of the Atlantic salmon futures risk premium," Journal of Commodity Markets, Elsevier, vol. 2(1), pages 6-17.
    4. Roncoroni, Andrea & Prokopczuk, Marcel & Ronn, Ehud I., 2018. "Introduction—special issue on commodity and energy markets in the Journal of Banking and Finance," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 1-4.

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