Co-integrated Commodity Forward Pricing Model
Commodities pricing needs a specific approach as they are often linked to each other and so are expectedly doing their prices. They are called co-integrated when at least one stationary linear combination exists between them. Though widespread in economic literature, and even if many equilibrium relations and co-movements exist in economy, this principle of co-movement is not developed in derivatives field. Present study focuses on the following problem: How can the price of a forward agreement on a commodity be simulated, when it is co-integrated with other ones? Theoretical analysis is developed from Gibson-Schwartz model and analytical solution is given for short maturities contracts and under risk-neutral conditions. Application has been made to crude oil and heating oil energy commodities and result confirms the applicability of proposed method.
Year of publication: |
2014-07
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Authors: | Lucie, Munoz ; Florian, Boudet ; Victoria, Galano ; Douaa, Gmira ; Alizée, Reina |
Institutions: | International Institute of Social and Economic Sciences |
Subject: | Co-integration | Commodities | Forward Pricing | Gibson-Schwartz |
Saved in:
freely available
Series: | |
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Type of publication: | Book / Working Paper |
Notes: | Published in Proceedings of the Proceedings of the 2nd Economics & Finance Conference, Jul 2014, pages 356-362 Number 0401426 7 pages |
Classification: | C32 - Time-Series Models ; D40 - Market Structure and Pricing. General |
Source: |
Persistent link: https://www.econbiz.de/10011207355
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