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Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans

  • Richter, Martin

    (Finansbanken)

  • Sørensen, Carsten

    (Department of Finance, Copenhagen Business School)

Registered author(s):

    This paper sets up and estimates a continuous-time stochastic volatility model using panel data of soybean futures and options in an integrated time-series study. The model of commodity price dynamics is within the class of affine asset pricing models, and option prices are determined using a standard inversion of characteristic func- tions approach. Our modeling acknowledges that commodities exhibit seasonality patterns in both spot price level and volatility. The estimation method is based on a state space formulation of the model and a quasi maximum likelihood approach. Es- timation results are obtained based on weekly observations of soybean futures prices and options prices from the Chicago Board of Trade in the period October 1984 to March 1999. The empirical results support the conceptual ideas in the theory of storage, but not the view that convenience yields behave like timing options.

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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7179
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    Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2002-4.

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    Length: 47 pages
    Date of creation: 01 Jun 2002
    Date of revision:
    Handle: RePEc:hhs:cbsfin:2002_004
    Contact details of provider: Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
    Phone: +45 3815 3815
    Web page: http://www.cbs.dk/departments/finance/
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