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Author : Hui Di
Publisher :
ISBN 13 :
Total Pages : 114 pages
Book Rating : 4.:/5 (314 download)
Download or read book Convenience Yield Modelling in Commodity Futures Pricing written by Hui Di and published by . This book was released on 2005 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Sébastien Panchaud
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (895 download)
Download or read book Stochastic Convenience Yield Models and the Pricing of Commodity Futures Contracts written by Sébastien Panchaud and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of commodity futures contracts is intricate due to the consumptive nature of commodities. Indeed, because of this nature standard arbitrage arguments that work for capital assets cannot be applied for the pricing of commodity futures. This thesis investigates stochastic convenience yield models as a subclass of models attempting to provide a framework for adequately pricing commodity futures contracts. We provide all the necessary background for properly grasping these models by reviewing the main lessons derived from the theory of storage and martingale pricing. Having understood the challenges relating to the pricing of commodity futures contracts and being fully equipped to comprehend the mechanics behind stochastic convenience yield models, the reader is provided with a review of such models and some insights on more recent modelling features that improve the quality of basic stochastic convenience yield models.
Author : Jaime Casassus
Publisher :
ISBN 13 :
Total Pages : 36 pages
Book Rating : 4.:/5 (129 download)
Download or read book 'Maximal' Convenience Yield Model Implied by Commodity Futures written by Jaime Casassus and published by . This book was released on 2011 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a three-factor Gaussian model of commodity spot prices, convenience yields and interest rates, which extends previous research (e.g., Brennan (1991), Gibson and Schwartz (1990), Schwartz (1997), Ross (1997), Schwartz and Smith (2000)) in two ways. First, the model is maximal, and thus nests all previously proposed specifications. Second, we allow for time-varying risk-premia. We show that previous models have implicitly imposed unnecessary restrictions on the unconditional correlation structure of commodity prices, convenience yields and interest rates. Using data on copper, crude oil, silver and gold commodity futures, we empirically estimate the model using maximum likelihood. We find both features of the model to be economically and empirically significant. In particular, we find strong evidence for spot-price level dependence in convenience yields, which implies mean-reversion in spot prices under the risk-neutral measure, and is consistent with the quot;theory of storage.quot; We also find evidence for time-varying risk-premia, which implies mean-reversion of commodity prices under the physical measure albeit with different strength and long-term mean. The model thus disentangles the different sources of mean-reversion in spot commodity prices. The results suggest that the relative contribution of both effects (level dependent convenience yield vs. time-varying risk-premia) to mean reversion depends on the nature of the commodity. We find that for metals like gold and silver, negative correlation between risk-premia and spot prices explains most of the mean reversion, whereas for oil almost all of the mean-reversion in spot prices is attributable to convenience yields.
Author : Richard A. Heaney
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book An Approximation for Convenience Yield in Commodity Futures Pricing written by Richard A. Heaney and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The pricing of commodity futures contracts is important both for professionals and for academics. It is often argued that futures prices include a convenience yield and this paper uses a simple trading strategy to approximate the impact of convenience yields. The approximation requires only three variables, underlying asset price volatility; futures contract price volatility and the futures contract time to maturity. The approximation is tested using spot and futures prices from the London Metals Exchange contracts for copper, lead and zinc with quarterly observations drawn from a 25-year period, 1975 to 2000. Matching Euro-Market interest rates are used to estimate the risk free rate. The convenience yield approximation is found to be both statistically and economically important in explaining variation between the futures price and the spot price after adjustment for interest rates.
Author : Kristian R. Miltersen
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.3/5 ( download)
Download or read book Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates written by Kristian R. Miltersen and published by . This book was released on 1997 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Michael J. Brennan
Publisher :
ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.0/5 ( download)
Download or read book The Cost of Convenience and the Pricing of Commodity Contingent Claims written by Michael J. Brennan and published by . This book was released on 1986 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Viviana Fanelli
Publisher : CRC Press
ISBN 13 : 1351730959
Total Pages : 145 pages
Book Rating : 4.3/5 (517 download)
Download or read book Financial Modelling in Commodity Markets written by Viviana Fanelli and published by CRC Press. This book was released on 2020-01-14 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Modelling in Commodity Markets provides a basic and self-contained introduction to the ideas underpinning financial modelling of products in commodity markets. The book offers a concise and operational vision of the main models used to represent, assess and simulate real assets and financial positions related to the commodity markets. It discusses statistical and mathematical tools important for estimating, implementing and calibrating quantitative models used for pricing and trading commodity-linked products and for managing basic and complex portfolio risks. Key features: Provides a step-by-step guide to the construction of pricing models, and for the applications of such models for the analysis of real data Written for scholars from a wide range of scientific fields, including economics and finance, mathematics, engineering and statistics, as well as for practitioners Illustrates some important pricing models using real data sets that will be commonly used in financial markets
Author : Matthias Lassak
Publisher : Diplomica Verlag
ISBN 13 : 3961465827
Total Pages : 101 pages
Book Rating : 4.9/5 (614 download)
Download or read book Pricing Metal Futures. The Two-Regime-Pricing Model revisited written by Matthias Lassak and published by Diplomica Verlag. This book was released on 2017-11-01 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Two-Regime-Pricing (TRP) model developed by Bühler, Korn and Schöbel (2004) is an important bridge between two strands of the literature of commodity futures pricing. It incorporates both the notion of a “convenience yield” and the idea of pricing based on the underlying spot price process. This work uses the TRP model and applies the findings to the pricing of industrial metal futures. In detail, the purpose of this study is to price a variety of futures contracts written on the traded industrial metals Aluminium, Aluminium Alloy, Copper, Lead, Nickel, Tin and Zinc using the TRP model and to analyze ist strengths and weaknesses in doing so. Given the spot price specification, a bootstrap maximum likelihood estimation is performed to determine the model parameters. Given the estimation results, the out-of-sample performance of the TRP model is compared to two benchmark models in the literature. In addition, the behavior of the theoretical futures prices is matched to metal futures properties observed in the market. By outlining the statistical challenges in estimation and forecasting in much detail, this work is valuable for researchers and academics in the field of derivatives pricing.
Author : M. A. H. Dempster
Publisher : CRC Press
ISBN 13 : 1498712339
Total Pages : 725 pages
Book Rating : 4.4/5 (987 download)
Download or read book Commodities written by M. A. H. Dempster and published by CRC Press. This book was released on 2015-11-05 with total page 725 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since a major source of income for many countries comes from exporting commodities, price discovery and information transmission between commodity futures markets are key issues for continued economic development.This book covers the fundamental theory of and derivatives pricing for major commodity markets as well as the interaction between commodi
Author : Takashi Kanamura
Publisher :
ISBN 13 :
Total Pages : 21 pages
Book Rating : 4.:/5 (129 download)
Download or read book Convenience Yield-Based Pricing of Commodity Futures written by Takashi Kanamura and published by . This book was released on 2010 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a convenience yield-based pricing for commodity futures, which embeds the incompleteness of commodity futures markets in convenience yield. By using the pricing method, we conduct empirical analyses of crude oil, heating oil, and natural gas futures traded on the NYMEX in order to assess the incompleteness of energy futures markets. We show that the fluctuation from incompleteness is partly owed to the fluctuation from convenience yield. In addition, it is shown that the additional Sharpe ratio, which represents the degree of market incompleteness and is also used for derivative pricing written on energy prices, is obtained from the NYMEX data. Then, we apply the implied market price of risk to the pricing of Asian call option on crude oil futures. As an empirical example, we try to compute the call option price using the parameters estimated from crude oil futures prices.
Author : Maureen E. Howe
Publisher :
ISBN 13 :
Total Pages : 288 pages
Book Rating : 4.:/5 (22 download)
Download or read book The Convenience Yield written by Maureen E. Howe and published by . This book was released on 1987 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Constantin Mellios
Publisher :
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4.:/5 (129 download)
Download or read book Valuation of Commodity Derivatives with an Unobservable Convenience Yield written by Constantin Mellios and published by . This book was released on 2008 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends, by developing a three-factor model, the existing literature on commodity derivatives to account for an unobservable stochastic convenience yield. The latter is not observable, but investors can draw inferences about it by observing the spot commodity price and the instantaneous interest rate. Investors operate in an economy with incomplete information. Quasi-analytical formulas for forward and futures prices, and closed-form solutions for options on forward and futures contracts are obtained. Numerical illustration allows comparing the model of this paper (incomplete information) to that of Schwartz's (1997). The two models provide similar futures prices for short maturities, but the Schwartz model prices may be higher than those of the incomplete information model for longer maturities. The incomplete information model, relative to the Schwartz model, has the tendency to overprice options for low volatilities of the three variables and to under price options for high volatilities. Moreover, for out of the money options, values between the two models diverge substantially.
Author : Craig Pirrong
Publisher : Cambridge University Press
ISBN 13 : 1139501976
Total Pages : 238 pages
Book Rating : 4.1/5 (395 download)
Download or read book Commodity Price Dynamics written by Craig Pirrong and published by Cambridge University Press. This book was released on 2011-10-31 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: Commodities have become an important component of many investors' portfolios and the focus of much political controversy over the past decade. This book utilizes structural models to provide a better understanding of how commodities' prices behave and what drives them. It exploits differences across commodities and examines a variety of predictions of the models to identify where they work and where they fail. The findings of the analysis are useful to scholars, traders and policy makers who want to better understand often puzzling - and extreme - movements in the prices of commodities from aluminium to oil to soybeans to zinc.
Author : Raymond H. Chan
Publisher : Springer
ISBN 13 : 9811336962
Total Pages : 395 pages
Book Rating : 4.8/5 (113 download)
Download or read book Financial Mathematics, Derivatives and Structured Products written by Raymond H. Chan and published by Springer. This book was released on 2019-02-27 with total page 395 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book introduces readers to the financial markets, derivatives, structured products and how the products are modelled and implemented by practitioners. In addition, it equips readers with the necessary knowledge of financial markets needed in order to work as product structurers, traders, sales or risk managers. As the book seeks to unify the derivatives modelling and the financial engineering practice in the market, it will be of interest to financial practitioners and academic researchers alike. Further, it takes a different route from the existing financial mathematics books, and will appeal to students and practitioners with or without a scientific background. The book can also be used as a textbook for the following courses: • Financial Mathematics (undergraduate level) • Stochastic Modelling in Finance (postgraduate level) • Financial Markets and Derivatives (undergraduate level) • Structured Products and Solutions (undergraduate/postgraduate level)
Author : Benjamin Stengl
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (611 download)
Download or read book Testing Futures Pricing Models written by Benjamin Stengl and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this Master's Thesis is to test and compare several existing pricing models of commodity futures. In contrast to futures on financial assets (like shares or bonds), the pricing of commodity futures cannot be done by means of simple arbitrage arguments. Thus, various pricing models (explaining the behavior of the price of the underlying commodity and the term structure of the futures prices) have been developed in the literature. These models depend on several factors and mostly none of them is directly observable in the markets, because commodities are rarely traded in a spot market. As various pricing models with one to three, and even n factors exist, a selection of three two-factor models is made, because it will be shown how quite simple models are able to handle strongly changing futures prices and which of the models can be applied under what circumstances. Two of them use the spot-price/convenience-yield approach (the spot price can be obtained by using a proxy) and the third the short-term/long-term equilibrium approach, where both state variables are unobservable; but because of its simple way to calculate the spot price, it is more flexible for extensions e.g. to deal with seasonality. To estimate the model parameters and the unobservable state variables, the Kalman-filter technique is implemented and as data, widely used crude oil and copper futures are applied. Both commodities show strong changes in their spot prices and futures price curves, both are liquid and accordingly, they provide a good and large database of price information. Finally, all the models and samples are used for an additional test to hedge long-term futures. The three tested models provide good approximations of almost all observed term structures. Moreover, the hedging test provides additional information about the quality of the models' pricing ability and about the question how to divide the tested samples, in case.
Author : Nicola Secomandi
Publisher : World Scientific
ISBN 13 : 9813149426
Total Pages : 258 pages
Book Rating : 4.8/5 (131 download)
Download or read book Real Options In Energy And Commodity Markets written by Nicola Secomandi and published by World Scientific. This book was released on 2016-11-28 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: The field of real options is concerned with the management and financial valuation of operational flexibility in business endeavors. From the very outset, energy and commodity markets — which play fundamental roles in the worldwide economy — have provided a relevant context for real option analysis, both in theory and practice.This volume is a collection of six chapters covering recent research on real options in energy and commodity markets, reflecting the significance of these markets for real option analysis. The volume is divided into two parts — the first on theory and the second on methods and applications.The two chapters in the first part of the book respectively address commodity storage and the concept of convenience yield, and how the management of real options can be impacted by the trader's own market decisions in the context of commodity shipping.The four chapters in the second part of the book propose and apply real option models in various domains — modeling the evolution of futures prices of emission certificates; managing copper extraction illustrated with an application to a project at Codelco, Chile, the largest copper producer in the world; the core ideas behind real option analysis in the context of the merchant management of hydrocarbon cracking operations; and optimizing the portfolio of contracts that oil refineries use to market their gasoline production.
Author : Shan Chen
Publisher :
ISBN 13 :
Total Pages : 179 pages
Book Rating : 4.:/5 (827 download)
Download or read book Modelling the Dynamics of Commodity Prices for Investment Decisions Under Uncertainty written by Shan Chen and published by . This book was released on 2010 with total page 179 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on commodity-linked investment decisions under uncertainty. Specifically, the first essay investigates whether a regime switching model of stochastic lumber prices is a better model for the analysis of optimal harvesting problems in forestry than a more traditional single regime model. Prices of lumber derivatives are used to calibrate a regime switching model, with each of two regimes characterized by a different mean reverting process. A single regime, mean reverting process is also calibrated. The value of a representative stand of trees and optimal harvesting prices are determined by specifying a Hamilton-Jacobi-Bellman Variational Inequality, which is solved for both pricing models using a fully implicit finite difference approach. The regime switching model is found to more closely match the behavior of futures prices than the single regime model. In addition, the optimal harvesting model indicates significant differences in terms of land value and optimal harvest thresholds between the regime switching and single regime models. The second essay investigates whether convenience yield is an important factor in determining optimal decisions for a forestry investment. The Kalman filter method is used to estimate three different models of lumber prices: a mean reverting model, a simple geometric Brownian motion and the two-factor price model due to Schwartz (1997). In the latter model there are two correlated stochastic factors: spot price and convenience yield. The two-factor model is shown to provide a reasonable fit of the term structure of lumber futures prices. The impact of convenience yield on a forestry investment decision is examined using the Schwartz (1997) long-term model which transforms the two-factor price model into a single factor model with a composite price. Using the long-term model an optimal harvesting problem is analyzed, which requires the numerical solution of a Hamilton-Jacobi-Bellman equation. I compare the results for the long-term model to those from single-factor mean reverting and geometric Brownian motion models. The inclusion of convenience yield through the long-term model is found to have a significant impact on land value and optimal harvesting decisions. The third essay investigates the dynamics of recent crude oil prices by comparing and contrasting three different stochastic price models, which are a two-state regime switching model, a two-factor model analyzed in Schwartz (1997) and a two-factor model examined in Schwartz and Smith (2000). Prices of long-term crude oil futures contracts are used to calibrate and estimate the model parameters. The performances of the two-factor models are comparable in terms of fitting the market prices of the long-term oil futures contracts and more closely match the behavior of oil futures prices than the regime switching model.
