Working Paper Series, Department of Finance, Copenhagen Business School
Martin Richter and Carsten Sørensen
Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans
Abstract: This paper sets up and estimates a continuous-time
stochastic volatility model using
panel data of soybean futures and
options in an integrated time-series study. The
model of commodity
price dynamics is within the class of affine asset pricing models,
option prices are determined using a standard inversion of characteristic
tions approach. Our modeling acknowledges that commodities
patterns in both spot price level and volatility.
The estimation method is based on a
state space formulation of the
model and a quasi maximum likelihood approach. Es-
timation results are
obtained based on weekly observations of soybean futures prices
options prices from the Chicago Board of Trade in the period October 1984
March 1999. The empirical results support the conceptual ideas in
the theory of
storage, but not the view that convenience yields behave
like timing options.
Keywords: Commodity derivatives; stochastic volatility; seasonality; integrated time-series estimation; (follow links to similar papers)
JEL-Codes: C00; G13; (follow links to similar papers)
47 pages, June 1, 2002
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