Maximal Affine Models for Multiple Commodities: A Note
17 Pages Posted: 9 Sep 2012
Date Written: September 8, 2012
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: Suggested Citation