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Commodity and Asset Pricing Models: An Integration

Author

Listed:
  • Gonzalo Cortazar
  • Ivo Kovacevic
  • Eduardo S. Schwartz

Abstract

We present a simple methodology that integrates commodity and asset pricing models. Given current evidence on the financialization of commodity markets, valuable information about commodity risk premiums can be extracted from asset pricing models and used to substantially improve the estimates of expected spot prices provided by current commodity price models. The methodology can be used with any pair of commodity and asset pricing models. An implementation of the methodology is presented using the Schwartz and Smith (2000) two-factor commodity price model and the CAPM. Reasonable expected spot prices are obtained without negative consequences in the model's fit to futures prices.

Suggested Citation

  • Gonzalo Cortazar & Ivo Kovacevic & Eduardo S. Schwartz, 2013. "Commodity and Asset Pricing Models: An Integration," NBER Working Papers 19167, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19167
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    References listed on IDEAS

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    1. Anders B. Trolle & Eduardo S. Schwartz, 2009. "Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives," Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4423-4461, November.
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    Cited by:

    1. Yannick Le Pen & Benoît Sévi, 2013. "Futures trading and the excess comovement of commodity prices," Post-Print hal-01613916, HAL.
    2. repec:ipg:wpaper:2013-019 is not listed on IDEAS
    3. repec:ipg:wpaper:19 is not listed on IDEAS

    More about this item

    JEL classification:

    • 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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