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

45 Pages Posted: 27 Feb 2002

See all articles by Martin Christian Richter

Martin Christian Richter

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics

Carsten Sørensen

Copenhagen Business School - Department of Finance

Abstract

We estimate a continuous-time stochastic volatility model using panel data of soybean futures and options on soybean futures. The model of commodity price dynamics is within the class of so-called affine asset pricing models, and option prices are determined using a standard inversion of characteristic functions approach.

Our modeling acknowledges that commodities exhibit seasonality patterns in both spot price level and volatility and, hence, the involved commodity dynamics involve stochastic differential equations that are inhomogeneous in time. The estimation method is based on a state space formulation of the model and a quasi maximum likelihood approach.

Estimation 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. Our empirical results support the conceptual ideas in the theory of storage, though not the view that convenience yields are like timing options.

JEL Classification: G13, C00

Suggested Citation

Richter, Martin Christian and Sørensen, Carsten, Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans. EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=301994 or http://dx.doi.org/10.2139/ssrn.301994

Martin Christian Richter (Contact Author)

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
00441415483872 (Phone)
00441415525589 (Fax)

Carsten Sørensen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Register to save articles to
your library

Register

Paper statistics

Downloads
1,354
Abstract Views
6,020
rank
13,444
PlumX Metrics