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Maximal Gaussian Affine Models for Multiple Commodities: A Note
Author(s) -
Casassus Jaime,
Liu Peng,
Tang Ke
Publication year - 2015
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.21649
Subject(s) - commodity , affine transformation , econometrics , gaussian , economics , yield (engineering) , convenience yield , spot contract , mathematical economics , mathematics , financial economics , finance , futures contract , pure mathematics , physics , thermodynamics , quantum mechanics
This study extends the maximal affine models of single assets to a multi‐commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion study Casassus, Liu, and Tang [Review of Financial Studies, 26, 1324–1362, 2013]. This cross‐commodity relationship is a feedback effect that may generate substantial co‐movement among long‐run commodity prices, a fact that is consistent with many empirical studies. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:75–86, 2015