Revisiting the pricing of commodity futures and forwards

Realdon, Marco (2013) Revisiting the pricing of commodity futures and forwards. Applied Financial Economics, 23 (3). pp. 233-240. ISSN 0960-3107

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Official URL: http://dx.doi.org/10.1080/09603107.2012.665594

Abstract

This article presents a collection of results and formulae for pricing commodity futures, futures options and forward contracts. These results extend previous work by Schwartz (1997). Unlike in Hilliard and Reis (1998), the model in this article predicts that jumps in the spot price affect futures and forward prices. Regime changes in the mean reversion level and in the volatility of spot prices also affect futures and forward prices. The discrete time setting, as the continuous time one, provides tractable pricing formulae, but it seems preferable to the continuous time setting for econometric estimation. In discrete time the market price of risk that affects futures and forwards can be more freely specified.

Item Type: Article
Uncontrolled Keywords: commodity futures pricing, forward pricing, Gaussian term structure model, mean-reverting spot price, commodity futures options, discrete time
Subjects: L100 Economics
N100 Business studies
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Ay Okpokam
Date Deposited: 28 Aug 2013 10:58
Last Modified: 10 Aug 2015 10:57
URI: http://nrl.northumbria.ac.uk/id/eprint/13412

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