Is There a Term Structure of Futures Volatilities? Reevaluating the Samuelson Hypothesis

Bessembinder, Hendrik; Coughenour, Jay F.; Seguin, Paul J.; Smoller, Margaret Monroe

doi:10.3905/jod.1996.407967

Cited by 83 publications

(92 citation statements)

References 7 publications

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“…The most important information is revealed during the growth and harvest season, hence seasonality in the volatility of futures prices is expected. Bessembinder et al [6] have shown formally that the maturity effect implies mean reversion in the underlying spot price. Galloway and Kolb [21] concluded that the maturity effect is present in markets where commodities experience seasonal demand and/or supply, but not in commodity markets where the cost-of-carry model works well.…”

Section: Swap Modeling Using the Hjm-approach: A General Modelmentioning

confidence: 99%

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Stochastic modeling of financial electricity contracts

2008

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Abstract. We discuss the modeling of electricity contracts traded in many deregulated power markets. These forward/futures type contracts deliver (either physically or financially) electricity over a specified time period, and is frequently referred to as swaps since they in effect represent an exchange of fixed for floating electricity price. We provide a thorough discussion of how the Nordic power market Nord Pool is organized, in order to motivate a Heath-Jarrow-Morton approach to model swap prices since the notion of a spot price is not easily defined. For general stochastic dynamical models, we connect the spot price, the fixed-delivery forward price and the swap price, and analyze two different ways to apply the Heath-Jarrow-Morton approach to swap pricing: Either one specifies a dynamics for the non-existing fixed-delivery forwards and derives the implied swap dynamics, or one models directly on the swaps. The former is shown to lead to quite complicated stochastic models for the swap price, even when the forward dynamics is simple. The latter has some theoretical problems due to a no-arbitrage condition that has to be satisfied for swaps with overlapping delivery period. To overcome this problem, we suggest a practical modeling approach where we suppose that the market only consists of non-overlapping swaps, and model these directly. A thorough empirical study is performed using data collected from Nord Pool. Our investigations demonstrate that it is possible to state reasonable models for the swap price dynamics which is analytically tractable for risk management and option pricing purposes, however, this is an area of further research.

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Section: Swap Modeling Using the Hjm-approach: A General Modelmentioning

confidence: 99%

“…where t is measured in years 6 . In this model the parameters are restricted in the following way: d j and f j are real constants and a, b ≥ 0.…”

Section: Swap Modeling Using the Hjm-approach: A Market Modelmentioning

confidence: 99%

Stochastic modeling of financial electricity contracts

2008

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“…Bessembinder et al (1996) provided a new framework for the maturity effect, the 'BCSS hypothesis' (based on Bessembinder, Coughenour, Seguin and Smoller). This hypothesis is an extension of the Samuelson hypothesis.…”

Section: Literature Reviewmentioning

confidence: 99%

The volatility of returns from commodity futures: evidence from India

Mukherjee

Goswami

2017

Financ Innov

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“…A motivation for this is that, when the delivery date approaches, the information flow will increase and therefore, decreasing uncertainty will lead to higher volatility of futures contract prices. Bessembinder et al [1996] state that the hypothesis will be supported in markets where spot prices are mean reverting. As discussed before, mean-reversion is a well-observed characteristic of electricity spot prices, therefore we can state that our results show evidence for the presence of the Samuelson effect: meaning that risk premiums in power futures prices decrease with increasing time to maturity.…”

Section: Resultsmentioning

confidence: 95%

Is Power Production Flexibility a Substitute for Storability? Evidence from Electricity Futures Prices

Kilic

Huisman

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in July 2010Abstract Electricity is not storable. As a consequence, electricity demand and supply need to be in balance at any moment in time as a shortage in production volume cannot be compensated with supply from inventories. However, if the installed power supply capacity is very flexible, variation in demand can be counterbalanced with flexible adjustment of production volumes. Therefore, supply flexibility can replace the role of inventory. In this paper, we question whether power production flexibility is a substitute for storability. To do so, we examine power futures prices from countries that differ in their power supply and test whether power futures prices contain information about expected future spot prices and risk premiums and examine whether futures prices from a market in which power supply is more flexible would lead to futures prices that are more in line with the theory of storage. We find the opposite; futures prices from markets with flexible power supply behave according to the expectations theory. The implicit view from futures prices is that flexibility is not a substitute for storability.

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Is There a Term Structure of Futures Volatilities? Reevaluating the Samuelson Hypothesis

Cited by 83 publications

References 7 publications

Stochastic modeling of financial electricity contracts

Stochastic modeling of financial electricity contracts

The volatility of returns from commodity futures: evidence from India

Is Power Production Flexibility a Substitute for Storability? Evidence from Electricity Futures Prices

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