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http://ssrn.com/abstract=1849505
 
 

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The Dynamics of Commodity Prices


Chris Brooks


University of Reading - ICMA Centre

Marcel Prokopczuk


Leibniz University Hannover - Faculty of Economics and Management; University of Reading - Henley Business School - ICMA Centre

May 30, 2011

Quantitative Finance, Vol. 13, No. 4, 2013

Abstract:     
In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties to those of the equity market. We observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

Number of Pages in PDF File: 42

Keywords: Commodity prices, stochastic volatility, jumps, Markov Chain Monte Carlo

JEL Classification: G10, C32

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Date posted: May 23, 2011 ; Last revised: December 29, 2013

Suggested Citation

Brooks, Chris and Prokopczuk, Marcel, The Dynamics of Commodity Prices (May 30, 2011). Quantitative Finance, Vol. 13, No. 4, 2013. Available at SSRN: http://ssrn.com/abstract=1849505 or http://dx.doi.org/10.2139/ssrn.1849505

Contact Information

Chris Brooks
University of Reading - ICMA Centre ( email )
Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)
Marcel Prokopczuk (Contact Author)
Leibniz University Hannover - Faculty of Economics and Management ( email )
Koenigsworther Platz 1
Hannover, 30167
Germany
University of Reading - Henley Business School - ICMA Centre ( email )
Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
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