Multi-Factor Stochastic Model and Estimation Procedure for the Valuation and Hedging of Commodity Contingent Claims

30 Pages Posted: 7 Dec 2003

See all articles by Gonzalo Cortazar

Gonzalo Cortazar

Pontificia Universidad Catolica de Chile

Lorenzo Naranjo

University of Miami - Department of Finance

Date Written: March 2003

Abstract

In this paper we provide a new multi-factor stochastic model of commodity futures prices and propose a Kalman filter estimation procedure that may be applied to a panel data with missing observations. This model may be used to implement financial engineering applications which require the valuation or hedging of commodity-linked assets. We calibrate our model using daily oil futures prices and analyze its goodness-of-fit to observed prices and empirical volatilities.

Keywords: Financial Engineering, Risk Management, Natural Resources, Economic Modelling, Kalman Filter

Suggested Citation

Cortazar, Gonzalo and Naranjo, Lorenzo, Multi-Factor Stochastic Model and Estimation Procedure for the Valuation and Hedging of Commodity Contingent Claims (March 2003). Available at SSRN: https://ssrn.com/abstract=476025 or http://dx.doi.org/10.2139/ssrn.476025

Gonzalo Cortazar (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Departamento Ingenieria Industrial y de Sistemas
Av. Vicuna Mackenna 4860
Santiago
Chile

Lorenzo Naranjo

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-9491 (Phone)

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