Commodity Futures price under co-integration

Victoria Galano, Jean-Marc Le Caillec () and Yves Rakotondratsimba
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Victoria Galano: ECE Engineering School - OMNES Education
Jean-Marc Le Caillec: Lab-STICC_TB_CID_SFIIS - Lab-STICC - Laboratoire des sciences et techniques de l'information, de la communication et de la connaissance - UEB - Université européenne de Bretagne - European University of Brittany - ENIB - École Nationale d'Ingénieurs de Brest - UBO EPE - Université de Brest - Bretagne INP - Institut National Polytechnique de Bretagne - UBS - Université de Bretagne Sud - UBO EPE - Université de Brest - Télécom Bretagne - IBNM - Institut Brestois du Numérique et des Mathématiques - UBO EPE - Université de Brest - ENSTA Bretagne - École Nationale Supérieure de Techniques Avancées Bretagne - IMT - Institut Mines-Télécom [Paris] - CNRS - Centre National de la Recherche Scientifique, ITI - Département Image et Traitement Information - UEB - Université européenne de Bretagne - European University of Brittany - Télécom Bretagne - IMT - Institut Mines-Télécom [Paris]
Yves Rakotondratsimba: ECE Engineering School - OMNES Education

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Abstract: Co-integration relationships among commodities are well established in various econometric studies. However their applications in derivatives pricing and risk-management remain to be challenging. Nakajima and Ohashi (2012) have been derived futures and call option prices under a co-integration version of the famous Gibson-Schwartz model. It arises that the prices under co-integration are actually given by very long formulas and involve technical and arduous computations. Our purpose in this work is to revisit the price of futures contract obtained by these two authors, with three main objectives: 1) to provide a price with an easily understandable statement form, 2) to perform very detailed proof, ensuring the result to be less error prone, 3) to implement the corresponding R-code, allowing the reader to benefit directly from the pricing formula. The form of price derived in this work has also the power to be workable for further explorations as in commodity portfolio risk measurement and hedging.

Keywords: Risk management; Gibson-Schwartz model; Derivatives pricing; Co-integration (search for similar items in EconPapers)
Date: 2015-01-29
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Published in XVI Workshop on quantitative finance, Jan 2015, Parme, Italy

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01198682

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