Commodity Forward Curve Dynamics with Inventory Information

38 Pages Posted: 18 Mar 2015

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Sebastian Vicedom

Leibniz Universität Hannover - Faculty of Economics and Management

Date Written: March 17, 2015

Abstract

In this paper we introduce a new two-factor commodity term structure model for which inventories serve as a second state variable. We derive a closed-form formula for futures prices and empirically analyze the model's properties. Besides being economically appealing, our model also outperforms the well-known Gibson and Schwartz (1990) model in terms of hedging abilities.

Keywords: Commodities, theory of storage, forward curve dynamics, crude oil, futures markets, hedging, inventory, convenience yield

JEL Classification: G13, C50, Q40

Suggested Citation

Prokopczuk, Marcel and Vicedom, Sebastian, Commodity Forward Curve Dynamics with Inventory Information (March 17, 2015). Available at SSRN: https://ssrn.com/abstract=2579834 or http://dx.doi.org/10.2139/ssrn.2579834

Marcel Prokopczuk (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Sebastian Vicedom

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

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