Maximal Affine Models for Multiple Commodities: A Note

17 Pages Posted: 9 Sep 2012

See all articles by Jaime Casassus

Jaime Casassus

Pontificia Universidad Catolica de Chile

Peng Liu

Cornell University - S.C. Johnson College of Business - School of Hotel Administration

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Date Written: September 8, 2012

Abstract

This paper 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 paper Casassus, Liu, and Tang (2012). Furthermore, the maximal model can offer a new feedback (error-correction) effect among commodity prices, which is consistent with many empirical studies.

Keywords: maximal affine models, multiple commodities, futures prices

JEL Classification: G13

Suggested Citation

Casassus, Jaime and Liu, Peng and Tang, Ke, Maximal Affine Models for Multiple Commodities: A Note (September 8, 2012). Available at SSRN: https://ssrn.com/abstract=2143561 or http://dx.doi.org/10.2139/ssrn.2143561

Jaime Casassus

Pontificia Universidad Catolica de Chile ( email )

Av. Vicuna Mackenna 4860
Instituto de Economia
Santiago
Chile
(56-2) 2354 4319 (Phone)

HOME PAGE: http://economia.uc.cl/profesor/jaime-casassus/

Peng Liu

Cornell University - S.C. Johnson College of Business - School of Hotel Administration ( email )

448 Statler Hall
Ithaca, NY 14853
United States
6072542960 (Phone)

Ke Tang (Contact Author)

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China

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