Price Mean Reversion and Seasonality in Agricultural Commodity Markets

Na Jin, Sergio Lence and Chad Hart

No 285317, 2010 Conference, April 19-20, 2010, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: Schwartz's (1997) two-factor model is generalized to allow for mean reversion in spot prices. Our modeling also acknowledges that commodities exhibit seasonality patterns in the spot price. A Bayesian MCMC algo- rithm is developed to estimate our model. Estimation of the Schwartz model is done by imposing appropriate restrictions to our model. Estimation results are obtained based on monthly observations of soybean futures prices and options prices from the Chicago Board of Trade over period from January 1978 to January 2010. We empirically estimate and compare our model with the Schwartz model, and show how the assumption of mean reversion in spot prices and seasonality a_x000B_ect the prediction of futures prices and option premium with short and long times to maturity.

Keywords: Marketing (search for similar items in EconPapers)
Date: 2010-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc10:285317

DOI: 10.22004/ag.econ.285317

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