• ISSN: 2010-023X
    • Frequency: Bimonthly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Executive Editor: Ms. Cherry L. Chen
    • Abstracting/ Indexing: Engineering & Technology Digital Library, ProQuest, Crossref, Electronic Journals Library, DOAJ , EBSCO, and Ulrich's Periodicals Directory
    • E-mail: ijtef@ejournal.net
IJTEF 2015 Vol.6(1): 32-36 ISSN: 2010-023X
DOI: 10.7763/IJTEF.2015.V6.437

Co-integration for Soft Commodities with Non Constant Volatility

E. Chanol, O. Collet, N. Kostyuchyk, T. Mesbah, and Quoc Hoang Long Nguyen
Abstract—In this paper, a pricing model is proposed for cointegrated commodities extending Larsson model. The futures formulae have been derived considering a linear combination of a Brownian motion and an Ornstein-Uhlenbeck process describing the co-integration relationship of the different futures prices commodities. Tests have been performed with a non-constant volatility in order to fit better the real behavior of the volatility. The model has been applied to energy commodities (gas, CO2, energy) and soft commodities (corn, wheat). Results show that first, the model can be used with different kind of commodities at the cost of a proper parameters calibration and in second, using a non-constant volatility leads to more accurate short term prices, which provides better evaluation of Value-at-Risk and more generally improves the risk management.

Index Terms—Co-integration, risk management, soft commodities, value-at-risk.

The authors are with the Financial Engineering Department, ECE – Paris, Paris, 75015 France (e-mail: nguyen.qhl@gmail.com, oceane.collet56@gmail.com, kostyuch.ua@gmail.com, tarek_mesbah001@gmail.com, chanol.elisabeth@gmail.com).

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Cite: E. Chanol, O. Collet, N. Kostyuchyk, T. Mesbah, and Quoc Hoang Long Nguyen, "Co-integration for Soft Commodities with Non Constant Volatility," International Journal of Trade, Economics and Finance vol.6, no.1, pp. 32-36, 2015.

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