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Stochastic Convenience Yield and the Pricing of Oil Contingent Claims
Author(s) -
GIBSON RAJNA,
SCHWARTZ EDUARDO S.
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb05114.x
Subject(s) - futures contract , spot contract , economics , deliverable , yield (engineering) , econometrics , barrel (horology) , sample (material) , oil storage trade , financial economics , oil price , actuarial science , monetary economics , engineering , mechanical engineering , chemistry , materials science , management , chromatography , metallurgy
This paper develops and empirically tests a two‐factor model for pricing financial and real assets contingent on the price of oil. The factors are the spot price of oil and the instantaneous convenience yield. The parameters of the model are estimated using weekly oil futures contract prices from January 1984 to November 1988, and the model's performance is assessed out of sample by valuing futures contracts over the period November 1988 to May 1989. Finally, the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time.