Tid: 27 mars 2007 kl 10.15-11.00 (OBS! Dag, tid och lokal!)

Plats : Seminarierummet 3721, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Cecilia Wingren

Titel: On Modelling the Convenience Yield in the Futures Market with application to five Consumption Commodities. (Examensarbete)

Sammanfattning: We model the dynamics of futures prices and corresponding forward curves of five consumption commodities; aluminium, copper, crude oil, heating oil, and natural gas. We implement two models that both introduce the concept of the convenience yield, i.e. the premium the user is willing to pay of having direct access to the commodity minus the storage cost.

The first model is the Gibson & Schwartz two-factor model, with the spot price and the convenience yield as coupled stochastic processes. The parameters of the model, obtained by using the Kalman filter, are unstable and yield a model that lacks in prediction capacity. However, the parameters provide us with a good intuition of what the characteristics of the forward curve evolution are.

A more direct approach of modelling the term structure is also studied, where the seasonal variations in the forward curve are estimated. The convenience yield is estimated through the assumption that it is deterministic. After this extraction has been made, seasonal variations of the spot price and convenience yield are analysed. For some commodities we find strong evidence of that the level and volatility of these processes are seasonality dependent.

Both models show evidence of Keynes's theory of normal backwardation. When it comes to prediction capacity, the seasonal model seems superior. The results from prediction of random samples, taken from our collection of data, show that the two-factor model yields a significantly larger Root Mean Square Error for all commodities under study.

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