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Modeling commodity prices under the CEV model

Geman, Hélyette and Shih, Yih-Fong (2009) Modeling commodity prices under the CEV model. Journal of Alternative Investments 11 (3), pp. 65-84. ISSN 1520-3255.

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Official URL: http://dx.doi.org/10.3905/JAI.2009.11.3.065

Abstract

This paper introduces the constant elasticity of variance (CEV) model for commodity prices and examines its calibration to four strategic commodity trajectory prices over the period 1990 - 2007 by using a Generalized Method of Moments. Six other models are compared to the CEV one by performing a test of goodness-of-fit. Estimating the model for crude oil, coal, copper and gold and comparing the results during the sub- periods 1990-1999 and 2000-2007, we find that the constant elasticity of variance exponent can efficiently account for the stochastic volatility observed after 2000 in commodity prices. Moreover, we exhibit that although mean- reverting processes well captured the pattern of commodity prices prevailing before 2000, they do not apply to the recent past.

Item Type: Article
Additional Information: Full-text not yet cleared for open access by publisher
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 01 Dec 2010 14:06
Last Modified: 17 Apr 2013 12:33
URI: http://eprints.bbk.ac.uk/id/eprint/1944

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