Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans

This paper sets up and estimates a continuous-time stochastic volatility model using <p> panel data of soybean futures and options in an integrated time-series study. The <p> model of commodity price dynamics is within the class of affine asset pricing models, <p> and option prices are determined using a standard inversion of characteristic func- <p> tions approach. Our modeling acknowledges that commodities exhibit seasonality <p> patterns in both spot price level and volatility. The estimation method is based on a <p> state space formulation of the model and a quasi maximum likelihood approach. Es- <p> timation results are obtained based on weekly observations of soybean futures prices <p> and options prices from the Chicago Board of Trade in the period October 1984 to <p> March 1999. The empirical results support the conceptual ideas in the theory of <p> storage, but not the view that convenience yields behave like timing options.