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Stochastic Surface Models for Commodity Futures: A 2D Kalman Filter Approach

Francisco Javier Fernández Macho
Authors registered in the RePEc Author Service: Javier Fernandez-Macho

No 2011-05, BILTOKI from Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística)

Abstract: We propose a two-dimensional Kalman filter approach that, additional to the information contained in futures prices evolution over time, makes use of information contained in the term structure of commodity futures along a second dimension of maturities. This time-maturity surface reflects a complete realization of the stochastic process as an alternative to standard Kalman filtering of a limited vector of futures prices along the one-dimensional time line. Thus, the proposed methodology may use the full information from the entire surface dynamics, including links from all available maturities per period, which eventually should lead to more accurate model parameter estimates. The technique is illustrated using coal futures prices.

Keywords: commodity prices; two-dimensional Kalman filter; spatial analysis; energy markets; futures markets; stochastic dynamic model (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-ets and nep-ore
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Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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