Asymptotic Exponential Arbitrage in the Schwartz Commodity Futures Model

Tesfamariam Tadesse Welemical, Jane Akinyi Aduda and Martin Le Doux Mbele Bidima

International Journal of Mathematics and Mathematical Sciences, 2019, vol. 2019, 1-8

Abstract:

In this paper, we consider the Schwartz’s one-factor model for a storable commodity and a futures contract on that commodity. We introduce the analysis of asymptotic arbitrage in storable commodity models by proving that the futures prices process allows asymptotic exponential arbitrage with geometric decaying failure probability. Next, we find by comparison that, under some similar conditions, our result is a corresponding commodity assets (stronger) version of Föllmer and Schachermayer’s result stated in the modeling setting of geometric Ornstein-Uhlenbeck process for financial security assets.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jijmms:9450435

DOI: 10.1155/2019/9450435

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