In this paper we develop a continuous time factor model of commodity prices that allows for higher order autoregression and moving average components. The need for these components is documented by analyzing the convenience yield's time series dynamics. Making use of the affine model structure,...

In this paper we introduce a new two-factor commodity term structure model for which inventories serve as a second state variable. We derive a closed-form formula for futures prices and empirically analyze the model's properties. Besides being economically appealing, our model also outperforms...

This paper reviews extant research on commodity price dynamics and commodity derivatives pricing models. In the first half, we provide an overview of stylized facts of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second half,...

In this study, we investigate the determinants of convenience yields across a broad range of commodities. We find that the convenience yields of commodities are exposed to both commodity-specific and systematic factors, but to a different extent. The difference in explanatory power of these...

Using a comprehensive dataset of first, second and third generation commodity indices, we investigate the potential diversification benefits of commodities in equity–bond portfolios. To this end, different approaches of mean–variance spanning tests and out-of-sample portfolio optimization...

In this study, we investigate the cross-section of option implied tail risks in commodity markets. In contrast to findings from equity markets, left and right tail risk implied by option markets are both large. Commodity specific variables exert the largest influence on tail risk, while there is...