Commodity markets, price limiters and speculative price dynamics

TLDR: In this paper, the authors developed a behavioral commodity market model with consumers, producers and heterogeneous speculators to characterize the nature of commodity price fluctuations and explore the effectiveness of price stabilization schemes.

About: This article is published in Journal of Economic Dynamics and Control.The article was published on 2005-09-01 and is currently open access. It has received 128 citations till now. The article focuses on the topics: Mid price & Limit price.

Figures

Fig. 2. Homoclinic bifurcation of the map without price limiter (a)–(c) and with price limiter (d). The other parameters are a ¼ 1; c=1.5, d=1, m=1 and F=0. (a) b ¼ 4; (b) b ¼ 4:36; (c) b ¼ 4:5 and (d) b ¼ 4:5 and Smin ¼ 1:6:

Fig. 6. The top panel shows log price dynamics when the central authority switches between log price limiters Smin= 1.3 and Smax=1.3. A change in regime occurs if the buffer stock exceeds a level of about 715. The bottom panel shows the corresponding evolution of the buffer stock. The other parameters are a ¼ 1; b ¼ 4:5; c ¼ 1:5; d ¼ 1; m ¼ 1 and F ¼ 0:

Fig. 1. Bifurcation diagrams for parameters b and c using different initial conditions. The parameters are increased in 500 steps as indicated on the axis. Log prices are plotted from t ¼ 5002600: The other parameters are a ¼ 1; b ¼ 4:5; c ¼ 1:5; d ¼ 1; m ¼ 1 and F ¼ 0:

Fig. 5. The bifurcation diagrams in the first line of panels show how log prices react to more restrictive price boundaries. Log price limits are varied in 500 steps and log prices are plotted from t=500–600. The parameter setting is as in Fig. 4. The second and third lines of panels show the mean and the variance of the price process (buffeted with dynamic noise N(0, 0.1). All statistics are based on 10,000 observations.

Fig. 4. The top panel shows the unrestricted evolution of the commodity’s log price in the time domain. The bottom panel shows the same, but with a lower price boundary of Smin= 1.6. The other parameters are a ¼ 1; b ¼ 4:5; c ¼ 1:5; d ¼ 1; m ¼ 1 and F ¼ 0:

Fig. 3. Local stability region Y for the log of the fundamental value F and Z for the two non-fundamental steady states S7 in parameter space (b, c). In addition, pitchfork, flip and homoclinic bifurcation curves. The other parameters are a ¼ 1; d=1, m=1 and F=0.

Frequently asked questions

Q1. What are the contributions in "Commodity markets, price limiters and speculative price dynamics" ?

Within their model, the authors analyze how nonlinear interactions between market participants can create either bull or bear markets, or irregular price fluctuations between bull and bear markets through a ( global ) homoclinic bifurcation.