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The dynamics of commodity prices

Chris Brooks and Marcel Prokopczuk ()

Quantitative Finance, 2013, vol. 13, issue 4, 527-542

Abstract: In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties with those of the equity market. we observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

Date: 2013
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Working Paper: The Dynamics of Commodity Prices (2011) Downloads
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