CREATES lunch seminar: Mikkel Mulvad Bennedsen

Title: Modelling Commodity Prices by Brownian Semistationary Processes

Info about event

Time

Tuesday 4 March 2014,  at 12:00 - 12:30

Location

Fuglesangs Allé 4, 8210 Aarhus V, building 2628, room 303

Abstract

We introduce Brownian Semistationary (BSS) processes as a model for commodity prices. A BSS process is a continuous time stochastic process given by a moving average type stochastic integral of which the Ornstein-Uhlenbeck process is a special case. The BSS framework generalizes the often used Schwartz model by specifying prices directly in stationarity, accounting for stochastic volatility, fitting a more general autocorrelation structure and allowing for long memory and non-semimartingality without introducing arbitrage. In this way we account for several stylized facts in commodity markets such as mean reversion, time varying volatility and volatility clustering and a leverage effect. We present various estimators and associated tests of the parameters of our model and conduct an extensive Monte Carlo experiment to investigate the finite sample properties of these. This is the first time this has been done in the literature as all previous work on the estimators and tests in the BSS setting has been theoretical in the form of asymptotic results. We apply the methods and fit a BSS process to 33 different commodities and compare with the Schwartz model. We find that the new model is able to provide a better fit of the autocorrelation structure of the empirically observed prices and provide superior forecasts of out-of-sample prices.

CREATES arranges lunch seminars on a regular basis, normally on Tuesdays. The speakers are usually CREATES members, mostly PhD-students and postdocs. The speakers can also be visiting PhD-students or professors.

Each lunch seminar is followed by a discussion of the paper presented.

Organizers: Anders Bredahl Kock and Cristina Amado.

Place: CREATES meeting room, M303, building 2628 (M)

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