A multicommodity model of futures prices: Using futures prices of one commodity to estimate the stochastic process of another

Gonzalo Cortazar, Carlos Milla and Felipe Severino

Journal of Futures Markets, 2008, vol. 28, issue 6, 537-560

Abstract: This article proposes a multicommodity model of futures prices of more than one commodity that allows the use of long‐maturity futures prices available for one commodity to estimate futures prices for the other. The model considers that commodity prices have common and commodity‐specific factors. A procedure for choosing the number of both types of unobservable‐Gaussian factors is presented. Also, it is shown how commodities with and without seasonality may be jointly modeled and how to estimate the model using Kalman filter. Results for the West Texas Intermediate–Brent and for the West Texas Intermediate–unleaded gasoline models presented show strong improvements over the traditional individual‐commodity models, with much lower out‐of‐sample errors and better volatility estimates, even when using fewer factors. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:537–560, 2008

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (15)

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:28:y:2008:i:6:p:537-560

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 ().