This paper reviews extant research on commodity price dynamics and commodity derivative pricing models. In the first half, we provide an overview of key characteristics of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second...

This work discusses potential pitfalls of applying linear regression models for explaining the relationship between spot and futures prices in electricity markets. In particular, the bias coming from the simultaneity problem, the effect of correlated measurement errors and the impact of...

This study advances the research on the convenience yield of bulk commodities with particular emphasis on thermal coal. We extend the option model of Milonas and Thomadakis (1997) to estimate thermal coal convenience yields using forward prices. We examine the business cycle of thermal coal in...

In this paper, we first provide empirical evidence of the existence of intraday jumps in the crude oil price series. We then show that these jumps, in conjunction with realized volatility measures, are important in modeling the convenience yield over the 2001-2010 period. Our empirical results...

We model electricity futures prices using a seasonal forward curve model, quantifying seasonalities by a deterministic seasonal forward premium. Stochastic features of the futures prices are contained in the stochastic forward premium: a quantity analogous to the well-known convenience yield....

The value of the timing option implicit in CBOT corn futures contract is estimated. Separate estimates are obtained for the option without and with convenience yield. The effect of the option on basis behavior at day one of the maturity month is examined and is found statistically significant.

An updated supply of storage equation is estimated to reflect recent developments in the theoretical and empirical literature. Among the findings is an inverse relationship between storage cost adjusted price spread and a proxy measure of convenience yield, and a curvilinear relationship between...

The paper develops an oil price forecasting technique which is based on the present value model of rational commodity pricing. The approach suggests shifting the forecasting problem to the marginal convenience yield which can be derived from the cost-of-carry relationship. In a recursive...

By examining the gold leasing market and employing data on the gold forward offered rate (GOFO) and derived lease rates, we propose that rather than using the interest-adjusted basis as a proxy for the convenience yield of gold, the convenience yield is better approximated by the derived gold...

The commodity bull cycle of 2006-2008 and subsequent dramatic price decline have been a source of hardship for traditional commodity market participants such as producers and merchant/shippers. The usefulness of futures markets has been called into question, especially given that some market...