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Stochastic Surface Models for Commodity Futures: A 2D Kalman Filter Approach

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  • Fernández Macho, Francisco Javier

Abstract

We propose a two-dimensional Kalman filter approach that, additional to the information contained in futures prices evolution over time, makes use of information contained in the term structure of commodity futures along a second dimension of maturities. This time-maturity surface reflects a complete realization of the stochastic process as an alternative to standard Kalman filtering of a limited vector of futures prices along the one-dimensional time line. Thus, the proposed methodology may use the full information from the entire surface dynamics, including links from all available maturities per period, which eventually should lead to more accurate model parameter estimates. The technique is illustrated using coal futures prices.

Suggested Citation

  • Fernández Macho, Francisco Javier, 2011. "Stochastic Surface Models for Commodity Futures: A 2D Kalman Filter Approach," BILTOKI 1134-8984, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    • Handle: RePEc:ehu:biltok:5503
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    References listed on IDEAS

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    1. Fernández-Macho, Javier, 2008. "Spectral estimation of a structural thin-plate smoothing model," Computational Statistics & Data Analysis, Elsevier, vol. 53(1), pages 189-195, September.
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    5. Abadie, Luis María & Chamorro Gómez, José Manuel, 2005. "Valuing Flexibility: The case of an Integrated Gasification Combined Cycle Power Plant," IKERLANAK 2005-21, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
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    7. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
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    More about this item

    Keywords

    commodity prices; two-dimensional Kalman filter; spatial analysis; energy markets; futures markets; stochastic dynamic model;
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