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Prognoses for a Non-Predictable Discounted Commodity Price Process


  • Wright, Brian D.
  • Bobenrieth
  • Eugenio S. A.


We consider the behavior of the price of a continuously stored commodity, for which discounted price is a non-constant martingale, and thus not-predictable. We prove that the discounted price realization is within any given neighborhood of zero, with any given probability less than 1, beyond a finite state-independent horizon. Furthermore, with probability 1, the path of discounted price realizations will lie permanently within any given neighborhood of zero beyond a finite state-dependent horizon. The martingale property implies that for a sufficiently long series of initial dates, the average of returns over a given horizon approximates the opportunity cost of capital arbitrarily exactly. But the average of returns for the same initial dates, over a sufficiently extended horizon, reflects the eventual and permanent downward divergence of price realizations from any profile of conditional expectations.

Suggested Citation

  • Wright, Brian D. & Bobenrieth & Eugenio S. A., 2004. "Prognoses for a Non-Predictable Discounted Commodity Price Process," Econometric Society 2004 Latin American Meetings 19, Econometric Society.
  • Handle: RePEc:ecm:latm04:19

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    More about this item


    Non-Predictable; Price; Speculation;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


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