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Interpolating commodity futures prices with Kriging

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  • Andrea Maran
  • Andrea Pallavicini

Abstract

The shape of the futures term structure is essential to commodity hedgers and speculators as futures prices serve as a forecast of future spot prices. Commodity markets quotes futures prices on a selection of maturities and delivery periods. In this note, we investigate a Bayesian technique known as Kriging to build a term structure of futures prices by embedding trends and seasonalities and by taking into account bid-ask spreads of market quotations on different delivery periods.

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  • Andrea Maran & Andrea Pallavicini, 2021. "Interpolating commodity futures prices with Kriging," Papers 2110.13021, arXiv.org, revised Mar 2022.
    • Handle: RePEc:arx:papers:2110.13021
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    1. Alvaro Cartea & Marcelo Figueroa, 2005. "Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with Seasonality," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(4), pages 313-335.
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