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Maximal Gaussian Affine Models for Multiple Commodities: A Note

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  • Jaime Casassus
  • Peng Liu
  • Ke Tang

Abstract

This paper extends the maximal affine models of single assets to a multi-commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion paper Casassus, Liu, and Tang (2013). This cross-commodity relationship is a feedback effect that may generate substantial comovement among long-run commodity prices, a fact that is consistent with many empirical studies.

Suggested Citation

  • Jaime Casassus & Peng Liu & Ke Tang, 2014. "Maximal Gaussian Affine Models for Multiple Commodities: A Note," Documentos de Trabajo 456, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:456
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    References listed on IDEAS

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    1. A. G. Malliaris & Jorge L. Urrutia, 1996. "Linkages between agricultural commodity futures contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(5), pages 595-609, August.
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    9. Jaime Casassus & Pierre Collin‐Dufresne, 2005. "Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates," Journal of Finance, American Finance Association, vol. 60(5), pages 2283-2331, October.
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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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