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,...