Work

Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates

Year: 2005

Type: article

Abstract: ABSTRACT We characterize a three‐factor model of commodity spot prices, convenience yields, and interest rates, which nests many existing specifications. The model allows convenience yields to depend on spot prices and interest rates. It also allows for time‐varying risk premia. Both may induce mean reversion in spot prices, albeit with very different economic implications. Empirical results show strong evidence for spot‐price level dependence in convenience yields for crude oil and copper, which implies mean reversion in prices under the risk‐neutral measure. Silver, gold, and copper exhibit time variation in risk premia that implies mean reversion of prices under the physical measure.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2005.00799.x

Authors: JAIME CASASSUS, PIERRE COLLIN‐DUFRESNE

Institutions: University of Southern California, University of Wisconsin–Madison, Pontificia Universidad Católica de Chile, Carnegie Mellon University, University of California, Berkeley

Language: English

Topic: Market Dynamics and Volatility

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2161387316

FWCI: 28.64

Cites: 54

Cited by: 443

Related to: 10