Modeling seasonality in agricultural commodity futures

Abstract

The stochastic behavior of agricultural commodity prices is investigated using observations 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 seasonal component, a non-stationary statevariable, and a stationary state-variable. Futures prices are established by standard no-arbitrage arguments and the Kalman filter methodology is used to estimate the model parameters for corn futures, soybean 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 seasonal patterns in agricultural commodity prices, the paper provides empirical evidence on the theory of storage that predicts a negative relationship between stocks of inventory and convenience yields; in particular, convenience yields used in this analysis are extracted using the Kalman filter.

A Stochastic Factor Model for Risk Management of Commodity Derivatives

“…In recent times, stochastic models of commodity futures prices have played a central role in evaluating commodity-related securities among academics and practitioners, such as Schwartz (1997), Schwartz and Smith (2000), Sorensen (2002), Cortazar and Schwartz (2003), Cortazar and Naranjo (2006), Mirantes, Poblacion andSerna (2012), Carmona andCoulon (2014), and et al. A detailed survey of these types of models is written by Pirrong (2011).…”

Processos estocásticos dos preços das commodities: uma abordagem através do filtro de partículas

“…Outra especificação relevante seria a inclusão de saltos. Sørensen (2002) apresentou um estudo sobre a modelagem da sazonalidade para os preços futuros de commodities agrícolas. Usou o modelo de dois fatores de Schwartz e Smith (2000) introduzindo uma componente determinística para modelar a sazonalidade.…”

“…Pode-se notar que o modelo de dois fatores de Schwartz e Smith (2000) foi usado em trabalhos subsequentes para a commodity gás natural em Manoliu e Tompaidis (2000), para commodities agrícolas em Sørensen (2002). Além disso, permitiu extensões como em Lucia e Schwartz (2001) que analisa os preços da energia elétrica.…”

Models with Short-Term Variations and Long-Term Dynamics in Risk Management of Commodity Derivatives

“…In recent times, stochastic models of commodity futures prices have played a central role in evaluating commodity-related securities among academics and practitioners, such as Schwartz (1997), Schwartz and Smith (2000), Sorensen (2002), Cortazar and Schwartz (2003), Cortazar and Naranjo (2006), Mirantes, Poblacion and Serna (2012), Carmona and Coulon (2014), and et al. A detailed survey of these types of models is written by Pirrong (2011).…”

“…Many empirical studies have pointed out due to the lack of low-cost transportation and the limited storability futures prices of other commodities, such as agriculture, natural gas, gasoil, heating oil, RBOB gasoline, peak and off-peak electricity, contain a seasonal component. For example, Sorensen (2002) investigates the seasonal patterns of agricultural commodity prices and shows that a deterministic seasonal component, a non-stationary state-1 Although Bloomberg collected data from the exchanges, Bloomberg does not have the proprietary to publish the data directly and has to make some adjustments. For the example we use, there are moderate differences between the two data sources and the data from Bloomberg seems to be polluted and contains more outliers.…”