Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans

Martin Richter, Carsten Sørensen

Research output: Working paperResearch

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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, and option prices are determined using a standard inversion of characteristic functions approach. Our modeling acknowledges that commodities exhibit seasonality 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. Estimation results are obtained based on weekly observations of soybean futures prices and options prices from the Chicago Board of Trade in the period October 1984 to 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.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherInstitut for Finansiering, Copenhagen Business School
Number of pages45
ISBN (Print)8790705610
Publication statusPublished - 2002
SeriesWorking Papers / Department of Finance. Copenhagen Business School
Number2002-4
ISSN0903-0352

Keywords

  • Commodity derivatives
  • Stochastic volatility
  • Seasonality
  • Integrated time-series estimation

Cite this

Richter, M., & Sørensen, C. (2002). Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans. Frederiksberg: Institut for Finansiering, Copenhagen Business School. Working Papers / Department of Finance. Copenhagen Business School, No. 2002-4
Richter, Martin ; Sørensen, Carsten. / Stochastic Volatility and Seasonality in Commodity Futures and Options : The Case of Soybeans. Frederiksberg : Institut for Finansiering, Copenhagen Business School, 2002. (Working Papers / Department of Finance. Copenhagen Business School; No. 2002-4).
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Richter, M & Sørensen, C 2002 'Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans' Institut for Finansiering, Copenhagen Business School, Frederiksberg.

Stochastic Volatility and Seasonality in Commodity Futures and Options : The Case of Soybeans. / Richter, Martin; Sørensen, Carsten.

Frederiksberg : Institut for Finansiering, Copenhagen Business School, 2002.

Research output: Working paperResearch

TY - UNPB

T1 - Stochastic Volatility and Seasonality in Commodity Futures and Options

T2 - The Case of Soybeans

AU - Richter, Martin

AU - Sørensen, Carsten

PY - 2002

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N2 - 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, and option prices are determined using a standard inversion of characteristic functions approach. Our modeling acknowledges that commodities exhibit seasonality 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. Estimation results are obtained based on weekly observations of soybean futures prices and options prices from the Chicago Board of Trade in the period October 1984 to 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.

AB - 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, and option prices are determined using a standard inversion of characteristic functions approach. Our modeling acknowledges that commodities exhibit seasonality 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. Estimation results are obtained based on weekly observations of soybean futures prices and options prices from the Chicago Board of Trade in the period October 1984 to 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.

KW - Stokastiske processer

KW - Derivater

KW - Case studies

KW - Sojabønner

KW - Optioner

KW - Futures-råvarer

KW - Commodity derivatives

KW - Stochastic volatility

KW - Seasonality

KW - Integrated time-series estimation

M3 - Working paper

SN - 8790705610

T3 - Working Papers / Department of Finance. Copenhagen Business School

BT - Stochastic Volatility and Seasonality in Commodity Futures and Options

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Richter M, Sørensen C. Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans. Frederiksberg: Institut for Finansiering, Copenhagen Business School. 2002.