Equilibrium Forward Curves for Commodities

Bryan Routledge (), Duane J. Seppi and Chester S. Spatt

Journal of Finance, 2000, vol. 55, issue 3, 1297-1338

Abstract: We develop an equilibrium model of the term structure of forward prices for storable commodities. As a consequence of a nonnegativity constraint on inventory, the spot commodity has an embedded timing option that is absent in forward contracts. This option's value changes over time due to both endogenous inventory and exogenous transitory shocks to supply and demand. Our model makes predictions about volatilities of forward prices at different horizons and shows how conditional violations of the ‘Samuelson effect’ occur. We extend the model to incorporate a permanent second factor and calibrate the model to crude oil futures data.

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (218)

Downloads: (external link)
https://doi.org/10.1111/0022-1082.00248

Related works:
Working Paper: Equilibrium Forward Curves for Commodities
Working Paper: Equilibrium Forward Curves for Commodities
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:55:y:2000:i:3:p:1297-1338

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().