Time Delay and Noise Explaining Cyclical Fluctuations in Prices of Commodities

Uwe Küchler and Eckhard Platen ()
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Uwe Küchler: Humboldt University

No 195, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper suggests to model jointly time delay and random effects in economics and finance. It proposes to explain the random and often cyclical fluctuations in commodity prices as a consequence of the interplay between external noise and time delays caused by the time between initiation of production and delivery. The proposed model is formulated as a stochastic delay differential equation. The typical behavior of a commodity price index under this model will be discussed. Methods for parameter estimation and the evaluation of functionals will be proposed.

Keywords: commodity prices; stochastic delay differential equation; cyclical behavior; scenario simulation; parameter estimation; autocorrelation function (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Date: 2007-04-01
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