Premium
Modeling seasonality in agricultural commodity futures
Author(s) -
Sørensen Carsten
Publication year - 2002
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10017
Subject(s) - futures contract , commodity , economics , econometrics , kalman filter , state variable , seasonality , arbitrage , convenience yield , variable (mathematics) , contango , spread trade , financial economics , spot contract , mathematics , statistics , finance , mathematical analysis , corporate governance , open end fund , physics , institutional investor , thermodynamics
The stochastic behavior of agricultural commodity prices is investigated using observations of the termstructures of futures prices over time. The continuous time dynamics of (log‐) commodity pricesare modeled as a sum of a deterministic seasonal component, a non‐stationary state‐variable, and astationary state‐variable. Futures prices are established by standard no‐arbitrage arguments andthe Kalman filter methodology is used to estimate the model parameters for corn futures, soybean futures, andwheat futures based on weekly data from the Chicago Board of Trade for the period 1972–1997. Furthermore,in a discussion of the estimated seasonal patterns in agricultural commodity prices, the paper provides empiricalevidence on the theory of storage that predicts a negative relationship between stocks of inventory andconvenience yields; in particular, convenience yields used in this analysis are extracted using the Kalmanfilter. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:393–426, 2002