Construction of an SDE Model from Intraday Copper Futures Prices

Loretta Mastroeni () and Pierluigi Vellucci
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Loretta Mastroeni: Department of Economics, University of Roma Tre, 00145 Roma, Italy
Pierluigi Vellucci: Department of Economics, University of Roma Tre, 00145 Roma, Italy

Risks, 2022, vol. 10, issue 11, 1-21

Abstract: This paper introduces a model for intraday copper futures prices based on a stochastic differential equation (SDE). In particular, we derive an SDE that fits the model to the data and that is based on the whitening filter approach, a method characterizing linear time-variant systems. This method is applied to construct a model able to simulate the trajectories of copper futures prices, statistically described by means of an empirical autocorrelation approach. We show that the predictability of copper futures prices is rather weak. In fact, the developed model produces trajectories close to the actual data only in the short term. Consequently, the investment risk for copper futures is high. We also show that the performance of the model improves significantly if the time series satisfy particular conditions, e.g., those with a determinism measure.

Keywords: stochastic differential equations; autocorrelation; dynamical systems; determinism; time series analysis; copper; prices (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:10:y:2022:i:11:p:218-:d:975967

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