Volatility and commodity price dynamics
Name
2001-007.pdf
Size
584.61 KB
Format
Adobe PDF
Checksum (MD5)
0ade63b41f6730af7c8dab66918eba50
Author(s)
Pindyck, Robert S.
Date Issued
2001
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series) ; 01-007WP.
Abstract
Commodity prices tend to be volatile, and volatility itself varies over time. changes in volatility can affect market variables by directly affecting the marginal value of storage, and by affecting a component of the total marginal cost of productions: the opportunity cost of exercising the option to produce the commodity now rather than waiting for more price information. I examine the role of volatility in short-run commodity market dynamics, as well as the determinants of volatility itself. Specifically, I develop a model describing the joint dynamics of inventories, spot and futures prices, and volatility, and estimate it using daily and weekly data for the petroleum complex: crude oil, heating oil, and gasoline.
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