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Maximal Gaussian Affine Models for Multiple Commodities: A Note

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  • Jaime Casassus
  • Peng Liu
  • Ke Tang

Abstract

This study extends the maximal affine models of single assets to a multi‐commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion study Casassus, Liu, and Tang [Review of Financial Studies, 26, 1324–1362, 2013]. This cross‐commodity relationship is a feedback effect that may generate substantial co‐movement among long‐run commodity prices, a fact that is consistent with many empirical studies. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:75–86, 2015

Suggested Citation

  • Jaime Casassus & Peng Liu & Ke Tang, 2015. "Maximal Gaussian Affine Models for Multiple Commodities: A Note," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(1), pages 75-86, January.
    • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:1:p:75-86
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    1. Gonzalo Cortazar & Carlos Milla & Felipe Severino, 2008. "A multicommodity model of futures prices: Using futures prices of one commodity to estimate the stochastic process of another," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(6), pages 537-560, June.
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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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