Time-variations in commodity price jumps

Diewald, Laszlo, Prokopczuk, Marcel and Simen, Chardin Wese (2015) Time-variations in commodity price jumps. JOURNAL OF EMPIRICAL FINANCE, 31 (C). pp. 72-84.

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Abstract

In this paper, we study jumps in commodity prices. Unlike assumed in existing models of commodity price dynamics, a simple analysis of the data reveals that the probability of tail events is not constant but depends on the time of the year, i.e. exhibits seasonality. We propose a stochastic volatility jump-diffusion model to capture this seasonal variation. Applying the Markov Chain Monte Carlo (MCMC) methodology, we estimate our model using 20. years of futures data from four different commodity markets. We find strong statistical evidence to suggest that our model with seasonal jump intensity outperforms models featuring a constant jump intensity. To demonstrate the practical relevance of our findings, we show that our model typically improves Value-at-Risk (VaR) forecasts.

Item Type:	Article
Additional Information:	## TULIP Type: Articles/Papers (Journal) ##
Uncontrolled Keywords:	Commodities, Jump frequency, Seasonality, Markov Chain Monte Carlo
Subjects:	?? HG ??
Depositing User:	Symplectic Admin
Date Deposited:	31 Mar 2015 09:15
Last Modified:	16 Dec 2022 10:44
DOI:	10.1016/j.jempfin.2015.02.004
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/2008783

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