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Modeling seasonality in agricultural commodity futures

✍ Scribed by Carsten Sørensen

Publisher
John Wiley and Sons
Year
2002
Tongue
English
Weight
329 KB
Volume
22
Category
Article
ISSN
0270-7314

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✦ Synopsis

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 state‐variable, 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. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:393–426, 2002

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