Affine Diffusion Modeling of Commodity Futures Price Term Structure

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dc.contributor.advisor Nick Piggott, Committee Member en_US
dc.contributor.advisor Peter Bloomfield, Committee Member en_US
dc.contributor.advisor John Seater, Committee Member en_US
dc.contributor.advisor Paul Fackler, Committee Chair en_US
dc.contributor.author Tian, Yanjun en_US
dc.date.accessioned 2010-04-02T18:33:51Z
dc.date.available 2010-04-02T18:33:51Z
dc.date.issued 2003-07-28 en_US
dc.identifier.other etd-03252003-105132 en_US
dc.identifier.uri http://www.lib.ncsu.edu/resolver/1840.16/3644
dc.description.abstract Diffusion modeling of commodity price behavior is important for commodity risk management. This research seeks to improve upon the existing commodity diffusion models by incorporating stochastic volatility and seasonality through the affine diffusion framework. In particular, it evaluates affine diffusion models' performance at modeling commodity futures price term structure. Six affine diffusion models are studied in this research. They are one, two, three-factor Gaussian model and one, two, three-factor stochastic volatility model with a single stochastic volatility factor. Seasonality is modeled by allowing the forcing terms of the instantaneous drift and the instantaneous covariance to be seasonal. Model estimation is done through Q-MLE, for which the state variables are filtered through the Kalman Filter. To build the connection between affine diffusion models and known market regularities, affine state variables are interpreted. Factor interpretations used include the log of the spot price, a spot drift factor, and a spot variance factor. Empirical analysis covers models' performance at fitting and predicting futures price term structures; behavior of the interpretable models; and model stability. Empirical studies are applied to the corn and the unleaded gasoline markets. The following conclusions can be drawn from both markets: 1. For the purpose of modeling futures price dynamics alone, stochastic volatility models have no advantage over Gaussian models; 2. At least two factors are needed to adequately model commodity futures price term structures; the advantage of three-factor models, which is better capturing the curvature of the term structures, become evident under extreme market conditions; 3. State independent seasonality modeling is effective under most market conditions, but under extreme market conditions, seasonality can be mis-represented and it is the source of big measurement errors and prediction errors. 4. Two and three-factor affine diffusion models are able to generate model behavior that is consistent with known market regularities. en_US
dc.rights I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to NC State University or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. en_US
dc.subject stochastic processes en_US
dc.subject commodity markets en_US
dc.subject term structure modeling en_US
dc.subject affine diffusions en_US
dc.title Affine Diffusion Modeling of Commodity Futures Price Term Structure en_US
dc.degree.name PhD en_US
dc.degree.level dissertation en_US
dc.degree.discipline Economics en_US


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