Casassus acknowledges financial support from FONDECYT (Grant No. 1110841) and from Grupo Security through Finance UC. Liu acknowledges financial support from Institute of Social Science at Cornell University (small grant program). Tang acknowledges financial support from the National Science Fund for Distinguished Young Scholars of China (Grant No. 71325007). Any errors or omissions are the responsibility of the authors.
Maximal Gaussian Affine Models for Multiple Commodities: A Note
Article first published online: 30 JAN 2014
© 2014 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 35, Issue 1, pages 75–86, January 2015
How to Cite
Casassus, J., Liu, P. and Tang, K. (2015), Maximal Gaussian Affine Models for Multiple Commodities: A Note. J. Fut. Mark., 35: 75–86. doi: 10.1002/fut.21649
- Issue published online: 2 DEC 2014
- Article first published online: 30 JAN 2014
- Manuscript Accepted: 16 NOV 2013
- Manuscript Received: 8 SEP 2012
This study extends the maximal affine models of single assets to a multi-commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion study Casassus, Liu, and Tang [Review of Financial Studies, 26, 1324–1362, 2013]. This cross-commodity relationship is a feedback effect that may generate substantial co-movement among long-run commodity prices, a fact that is consistent with many empirical studies. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:75–86, 2015