Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans

Martin Richter and Carsten Sørensen
Additional contact information
Martin Richter: Finansbanken, Postal: Finansbanken A/S, Kalkbrænderihavnen 7, DK-2100 Copenhagen, Denmark
Carsten Sørensen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark

No 2002-4, Working Papers from Copenhagen Business School, Department of Finance

Abstract: This paper sets up and estimates a continuous-time stochastic volatility model using

panel data of soybean futures and options in an integrated time-series study. The

model of commodity price dynamics is within the class of affine asset pricing models,

and option prices are determined using a standard inversion of characteristic func-

tions approach. Our modeling acknowledges that commodities exhibit seasonality

patterns in both spot price level and volatility. The estimation method is based on a

state space formulation of the model and a quasi maximum likelihood approach. Es-

timation results are obtained based on weekly observations of soybean futures prices

and options prices from the Chicago Board of Trade in the period October 1984 to

March 1999. The empirical results support the conceptual ideas in the theory of

storage, but not the view that convenience yields behave like timing options.

Keywords: Commodity derivatives; stochastic volatility; seasonality; integrated time-series estimation (search for similar items in EconPapers)
JEL-codes: C00 G13 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2002-06-01
New Economics Papers: this item is included in nep-cfn, nep-ets and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cbsfin:2002_004

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