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Volatility and commodity price dynamics

Author(s)
Pindyck, Robert S.
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Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research.
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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.
Date issued
2001
URI
http://hdl.handle.net/1721.1/44979
Publisher
MIT Center for Energy and Environmental Policy Research
Other identifiers
2001-007
Series/Report no.
MIT-CEEPR (Series) ; 01-007WP.

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