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Analysis of the risk premium in the forward market for salmon

Fred Espen Benth, Anne Maria Eikeset, Simon Asher Levin and Wanjuan Ren

Journal of Commodity Markets, 2021, vol. 21, issue C

Abstract: We analyse forward prices observed at the Fishpool market, and propose a two-factor continuous-time stochastic process for modelling the time dynamics. The data analysis reveals that the two factors can be assumed to be a non-stationary compound Poisson process and a stationary continuous-time autoregressive dynamics, describing the bumps observed in the forward curves. We use the model to analyse the risk premium in the forward markets, and find a negative premium in the long end of the market which is in line with the theory of normal backwardation. However, contracts with short time to maturity have a risk premium with randomly changing sign, pointing towards a hedging pressure also induced by the demand-side of the market.

Keywords: Salmon futures; Autoregressive models in continuous time; Futures prices (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:21:y:2021:i:c:s240585131930087x

DOI: 10.1016/j.jcomm.2019.100122

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Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard

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