Author : Katsushi Nakajima
Publisher :
ISBN 13 :
Total Pages : 33 pages
Book Rating : 4.:/5 (13 download)
Book Synopsis The Dynamics of Commodity Spot, Forward, Futures Prices and Convenience Yield by : Katsushi Nakajima
Download or read book The Dynamics of Commodity Spot, Forward, Futures Prices and Convenience Yield written by Katsushi Nakajima and published by . This book was released on 2018 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies commodity spot, forward, and futures prices under a continuous-time setting. Our model considers a representative firm, which uses an input commodity to produce an output commodity, stores the commodity, and trades forward or futures commodities to hedge. Through the Hamilton-Jacobi-Bellman equation and Feynman-Kac formula, we derive relations between spot, forward, and futures prices. The convenience yield can be interpreted as shadow price of storage, short selling constraints, and limits of risk. We compare our result with the existing models. The optimal production plan and trading strategy for spot commodity and forward are also derived.