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An Approximation For Convenience Yield In Commodity Futures Pricing
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Book Synopsis An Approximation for Convenience Yield in Commodity Futures Pricing by : Richard A. Heaney
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.
Book Synopsis Convenience Yield Modelling in Commodity Futures Pricing by : Hui Di
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:
Book Synopsis The Cost of Convenience and the Pricing of Commodity Contingent Claims by : Michael J. Brennan
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:
Book Synopsis Convenience Yield-Based Pricing of Commodity Futures by : Takashi Kanamura
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.
Book Synopsis Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates by : Kristian R. Miltersen
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:
Book Synopsis 'Maximal' Convenience Yield Model Implied by Commodity Futures by : Jaime Casassus
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.
Book Synopsis Stochastic Convenience Yield Models and the Pricing of Commodity Futures Contracts by : Sébastien Panchaud
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.
Book Synopsis Equilibrium in Commodity Futures Markets by : Frederick L. A. Grauer
Download or read book Equilibrium in Commodity Futures Markets written by Frederick L. A. Grauer and published by . This book was released on 1977 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yield and Interest Rates by : Kristian R. Miltersen
Download or read book Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yield and Interest Rates written by Kristian R. Miltersen and published by . This book was released on 1997 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Convenience Yield by : Maureen E. Howe
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:
Book Synopsis Information in the Term Structure of Commodity-specific Interest Rates in the Chicago Wheat Futures Market by : Hun Kim
Download or read book Information in the Term Structure of Commodity-specific Interest Rates in the Chicago Wheat Futures Market written by Hun Kim and published by . This book was released on 1990 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Commodity Derivatives Pricing with an Endogenous Convenience Yield Market Price of Risk by : Sami Attaoui
Download or read book Commodity Derivatives Pricing with an Endogenous Convenience Yield Market Price of Risk written by Sami Attaoui and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a partial equilibrium model of the term structure of storable commodity futures and options on futures, where the stochastic movements of the convenience yield as well as those of interest rates and risk premia of primitives assets are considered. However, contrary to the existing literature, the risk premium of the convenience yield is derived endogenously. This framework is suited to the analysis of the impact of agent preference structure and investment horizon, along with other relevant state variables, on the convenience yield premium. Finally, closed form solutions for the prices of futures and options on futures are obtained, making our model suitable for commodity risk management.
Book Synopsis The Quality Variation Option Implicit in Futures Contracts by : Gerald D. Gay
Download or read book The Quality Variation Option Implicit in Futures Contracts written by Gerald D. Gay and published by . This book was released on 1983 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Commodity Spot and Futures Prices Under Supply, Demand, and Financial Trading by : Katsushi Nakajima
Download or read book Commodity Spot and Futures Prices Under Supply, Demand, and Financial Trading written by Katsushi Nakajima and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes the relationships of commodity spot and futures prices with convenience yield. Convenience yield is received by the owner of a spot commodity but not by the owner of the right to the commodity (e.g., futures). This is the first study to explicitly model commodity spot and futures prices using firms and speculators (i.e., supply and demand of a commodity). We found that spot and futures prices are related to convenience yield. Based on this we were able identify the structure of convenience yield, which can be decomposed into two components: yield and cost. Furthermore, these relations offer a basis for at least three ways of interpreting convenience yield. We obtained similar results using models that consider cash settlement and hedging with output commodity futures. We found that, when speculators are introduced, the differences in valuation of the futures price between risk-neutral and risk-averse entities consisted of future marginal storage costs plus convenience yield on futures. Thus, convenience yield arises from heterogeneous agents. Our model can be generalized to include multiple firms that take multiple input and output commodities and multiple speculators. We also derived the optimal production and trading strategy for spot commodities and futures, and we define and prove the existence of the equilibrium for this economy using additional assumptions.
Book Synopsis The Stochastic Behavior of Commodity Prices with Heteroskedasticity in the Convenience Yield by : Peng Liu
Download or read book The Stochastic Behavior of Commodity Prices with Heteroskedasticity in the Convenience Yield written by Peng Liu and published by . This book was released on 2010 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document a new stylized fact regarding the dynamics of the commodity convenience yield: the volatility of the convenience yield is heteroskedastic for industrial commodities; specically, the volatility (variance) of the convenience yield depends on the convenience yield level. To explore the economic and statistical signicance of the improved specication of the convenience yield process, we propose an affine model with three state variables (log spot price, interestrate, and the convenience yield). Our model captures three important features of commodity futures the heteroskedasticity of the convenience yield, the positive relationship between spot-price volatility and the convenience yield and the dependence of futures risk premium on the convenience yield. Moreover our model predicts an upward sloping implied volatility smile, commonly observed in commodity option market.
Book Synopsis An Introduction to the Valuation of Commodity Options by : James W. Hoag
Download or read book An Introduction to the Valuation of Commodity Options written by James W. Hoag and published by . This book was released on 1978 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Selected Writings on Futures Markets by :
Download or read book Selected Writings on Futures Markets written by and published by . This book was released on 1983 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt:
