Carsten Sørensen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Abstract: The stochastic behavior of agricultural commodity prices is investigated using ob- servations of the term structures of futures prices over time. The continuous time dynamics of (log-) commodity prices are modeled as a sum of a deterministic sea- sonal component, a non-stationary state-variable, and a stationary state-variable. Futures prices are established by standard no-arbitrage arguments and the Kalman lter methodology is used to estimate the model parameters for corn futures, soy- bean futures, and wheat futures based on weekly data from the Chicago Board of Trade for the period 1972-1997. Furthermore, in a discussion of the estimated sea- sonal patterns in agricultural commodity prices, we provide empirical evidence on the theory of storage that predicts a negative relationship between stocks of inven- tory and convenience yields; in particular, convenience yields used in this analysis are extracted using the Kalman lter.
Keywords: Asset Pricing
39 pages, December 1, 1999
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