✦ LIBER ✦

Volatility and commodity price dynamics

✍ Scribed by Robert S. Pindyck

Publisher: John Wiley and Sons
Year: 2004
Tongue: English
Weight: 163 KB
Volume: 24
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.20120

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✦ Synopsis

Abstract

Commodity prices are volatile, and volatility itself varies over time. Changes in volatility can affect market variables by directly affecting the marginal value of storage, and by affecting a component of the total marginal cost of production, the opportunity cost of producing the commodity now rather than waiting for more price information. I examine the role of volatility in short‐run commodity market dynamics and the determinants of volatility itself. I develop a structural model of inventories, spot, and futures prices that explicitly accounts for volatility, and estimate it using daily and weekly data for the petroleum complex: crude oil, heating oil, and gasoline. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1029–1047, 2004

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