Commodity Price Dynamics: A Structural Approach

Contents......Page 6
Preface......Page 10
1.1 Introduction......Page 16
1.2 A Commodity Taxonomy......Page 19
1.3 Commodity Markets and Data......Page 21
1.4 An Overview of the Remainder of the Book......Page 23
1.4.2 A Two-Factor Model of a Continuously Produced Commodity......Page 24
1.4.4 Commodity Pricing with Stochastic Fundamental Volatility......Page 25
1.4.6 The Pricing of Pollution Credits......Page 26
1.5 Where This Book Fits in the Literature......Page 27
2.1 Introduction......Page 33
2.2.1 Model Overview......Page 35
2.2.2 Competitive Equilibrium......Page 37
2.2.3 The Next Step: Determining the Forward Price......Page 39
2.2.4 Specifying Functional Forms and Shock Dynamics......Page 42
2.3 A More Detailed Look at the Numerical Implementation......Page 45
2.3.1 Solving a PDE Using Finite Differences:The One-Dimensional Case......Page 51
2.3.2 Solving the 2D PDE......Page 54
2.3.3 Boundary Conditions......Page 55
2.4 Summary......Page 57
3.1 Introduction......Page 59
3.2.2 Framework and Numerical Solution......Page 62
3.3 Moments and the State Variables......Page 64
3.4 Derivatives Pricing......Page 69
3.5 Extension: Storage Capacity Constraints......Page 80
3.6 Speculation and Price Dynamics......Page 82
3.7 Summary and Conclusions......Page 86
4.1 Introduction......Page 88
4.2 Empirical Tests of the Theory of Storage: A Brief Literature Review......Page 90
4.3.1 Overview......Page 92
4.3.2 The Extended Kalman Filter......Page 95
4.3.3 Parameter Choices and Data......Page 98
4.4 Results......Page 99
4.5 The Implications of the Model for the Speculation Debate......Page 115
4.6 Summary and Conclusions......Page 122
5.1 Introduction......Page 124
5.2 Speculation and Oil Prices......Page 129
5.3 The Storage Economy......Page 131
5.4 Equilibrium Competitive Storage......Page 133
5.5 Solution of the Storage Problem......Page 134
5.6 Results: Storage, Prices, and Spreads......Page 135
5.7 Results: The Time Series Behavior of Prices, Stocks, and Volatility......Page 139
5.8 Some Other Empirical Evidence......Page 141
5.9 Conclusions......Page 143
6.1 Introduction......Page 146
6.2 The Model......Page 149
6.3 Results......Page 152
6.4 Empirical Evidence......Page 160
6.5.1 Preferences......Page 167
6.5.2 Inventories as a Factor of Production......Page 170
6.5.3 Multiple Storable Commodities......Page 172
6.6 Summary and Conclusions......Page 177
7.1 Introduction......Page 179
7.2 The Model......Page 181
7.3 Results......Page 185
7.4 Summary......Page 193
8.1 Introduction......Page 196
8.2 Electricity Markets......Page 198
8.3 A Structural Model for Pricing Electricity Derivatives......Page 200
8.4 Model Implementation......Page 209
8.5.1 Daily Strike Optionsoption......Page 213
8.5.3 Spark Spread Options......Page 214
8.6.1 Daily Strike and Monthly Strike Options......Page 215
8.6.2 Spark Spread Options......Page 216
8.7 Results......Page 217
8.8 Complications......Page 226
8.9 Summary and Conclusions......Page 229
References......Page 232
Author Index......Page 236
Subject Index......Page 238