A contango‐constrained model for storable commodity prices

Diana R. Ribeiro and Stewart D. Hodges

Journal of Futures Markets, 2005, vol. 25, issue 11, 1025-1044

Abstract: This article presents a model of commodity price dynamics under the risk‐neutral measure where the spot price switches between two distinct stochastic processes depending on whether or not inventory is being held. Specifically, the drift of the spot price is equal to the cost of carry when the stock is positive. Conversely, whenever the drift of the spot price is less than the cost of carry, no inventory is being held. The properties of the spot price and the forward curves implied by this model are illustrated and analyzed with the use of numerical examples. A comparison with the single‐factor model by E. S. Schwartz (1997) is also provided. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1025–1044, 2005

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:25:y:2005:i:11:p:1025-1044

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().