A multicommodity model of futures prices: Using futures prices of one commodity to estimate the stochastic process of another. http://dx.doi.org/10.1002/fut.20322Revista : Journal of Futures Markets
Volumen : 28
Número : 6
Páginas : 537-560
Tipo de publicación : ISI Ir a publicación
This article proposes a multicommodity model of futures prices of more than one commodity that allows the use of long-maturity futures prices available for one commodity to estimate futures prices for the other. The model considers that commodity prices have common and commodity-specific factors. A procedure for choosing the number of both types of unobservable-Gaussian factors is presented. Also, it is shown how commodities with and without seasonality may be jointly modeled and how to estimate the model using Kalman filter. Results for the West Texas IntermediateBrent and for the West Texas Intermediateunleaded gasoline models presented show strong improvements over the traditional individual-commodity models, with much lower out-of-sample errors and better volatility estimates, even when using fewer factors.