The stochastic seasonal behavior of energy commodity convenience yields

Andrés García Mirantes, Javier Población and Gregorio Serna

Energy Economics, 2013, vol. 40, issue C, 155-166

Abstract: This paper contributes to the commodity pricing literature by consistently modeling the convenience yield with its empirically observed properties. Specifically, in this paper, we show how a four-factor model for the stochastic behavior of commodity prices, with two long- and short-term factors and two additional seasonal factors, may accommodate some of the most important empirically observed characteristics of commodity convenience yields, such as the mean reversion and stochastic seasonality. Based on this evidence, a theoretical model is presented and estimated to characterize the commodity convenience yield dynamics that are consistent with previous findings. We also show that commodity price seasonality is better estimated through convenience yields than through futures prices.

Keywords: Stochastic calculus; Commodity prices; Convenience yield; Seasonality; Kalman filter (search for similar items in EconPapers)
JEL-codes: C32 C51 C60 G13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:40:y:2013:i:c:p:155-166

DOI: 10.1016/j.eneco.2013.06.011

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