Maximal Gaussian Affine Models for Multiple Commodities: A Note

Jaime Casassus (), Peng Liu and Ke Tang

Journal of Futures Markets, 2015, vol. 35, issue 1, 75-86

Abstract: This study extends the maximal affine models of single assets to a multi‐commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion study Casassus, Liu, and Tang [Review of Financial Studies, 26, 1324–1362, 2013]. This cross‐commodity relationship is a feedback effect that may generate substantial co‐movement among long‐run commodity prices, a fact that is consistent with many empirical studies. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:75–86, 2015

Date: 2015
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