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A Contango-constrained model for storable commodity prices
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UNSPECIFIED. (2005) A Contango-constrained model for storable commodity prices. JOURNAL OF FUTURES MARKETS, 25 (11). pp. 1025-1044. ISSN 0270-7314
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Official URL: http://dx.doi.org/10.1002/fut.20180
Abstract
This article presents a model of commodity price dynamics under the risk-neutral measure where the spot price switches between two distinct stochastic processes depending on whether or not inventory is being held. Specifically, the drift of the spot price is equal to the cost of carry when the stock is positive. Conversely, whenever the drift of the spot price is less than the cost of carry, no inventory is being held. The properties of the spot price and the forward curves implied by this model are illustrated and analyzed with the use of numerical examples. A comparison with the single-factor model by E. S. Schwartz (1997) is also provided. (c) 2005 Wiley Periodicals, Inc.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Journal or Publication Title: | JOURNAL OF FUTURES MARKETS |
| Publisher: | JOHN WILEY & SONS INC |
| ISSN: | 0270-7314 |
| Date: | November 2005 |
| Volume: | 25 |
| Number: | 11 |
| Number of Pages: | 20 |
| Page Range: | pp. 1025-1044 |
| Identification Number: | 10.1002/fut.20180 |
| Publication Status: | Published |
| URI: | http://wrap.warwick.ac.uk/id/eprint/34463 |
Data sourced from Thomson Reuters' Web of Knowledge
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