Mean Reversion in Commodity Prices

Björn Lutz ()
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Björn Lutz: Hauck & Aufhäuser Asset

Chapter Chapter 2 in Pricing of Derivatives on Mean-Reverting Assets, 2010, pp 9-16 from Springer

Abstract: Abstract In this chapter, we discuss the sources, empirical evidence and implications of mean reversion in asset prices. As for the sources of mean reversion, there are three aspects to be discussed. Firstly and most importantly, the correlation between the convenience yield and spot prices accounts for mean reversion. Secondly, spot price level dependent time-varying risk premia have a mean-reverting impact on prices and thirdly, a negative relation between interest rates and prices induces mean reversion. In this section, we will tackle the link between mean reversion and convenience yields as well as with time-varying risk premia.1

Keywords: Interest Rate; Inventory Level; Future Price; Agricultural Commodity; Future Contract (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-02909-7_2

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DOI: 10.1007/978-3-642-02909-7_2

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