Volatility and commodity price dynamics
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In this article, the role of volatility in short-run commodity market dynamics and the determinants of volatility itself are examined, using daily and weekly data for the petroleum complex: crude oil, heating oil, and gasoline.Abstract:
Commodity prices are volatile, and volatility itself varies over time. Changes in volatility can affect market variables by directly affecting the marginal value of storage, and by affecting a component of the total marginal cost of production, the opportunity cost of producing the commodity now rather than waiting for more price information. I examine the role of volatility in short-run commodity market dynamics and the determinants of volatility itself. I develop a structural model of inventories, spot, and futures prices that explicitly accounts for volatility, and estimate it using daily and weekly data for the petroleum complex: crude oil, heating oil, and gasoline. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1029–1047, 2004read more
Citations
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Journal ArticleDOI
The Dynamics of Commodity Spot and Futures Markets: A Primer
TL;DR: In this paper, the authors discuss the short run dynamics of commodity prices, production, and inventories, as well as the sources and effects of market volatility, and illustrate these ideas with data for the petroleum complex over the past two decades.
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The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling
TL;DR: In this paper, the response of investment to changes in uncertainty using data on oil drilling in Texas and the expected volatility of the future price of oil is estimated using a dynamic model of firms' investment problem.
Journal ArticleDOI
Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us
TL;DR: This paper provided an overview of the causes of all major oil price fluctuations between 1973 and 2014 and discussed why price fluctuations remain difficult to predict, despite economists' improved understanding of oil markets.
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The Macroeconomic Determinants of Volatility in Precious Metals Markets
TL;DR: In this article, the same macroeconomic factors jointly influence the volatility processes of the precious metal price series, although there is some evidence of volatility feedback between the precious metals, which lends weight to views that individual commodities are too distinct to be considered a single asset class or represented by a single index.
Journal ArticleDOI
The macroeconomic determinants of volatility in precious metals markets
TL;DR: In this article, the macroeconomic determinants (business cycle, monetary environment and financial market sentiment) of the volatility of four precious metals (gold, silver, platinum and palladium) are investigated.
References
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Book
Investment Under Uncertainty
Avinash Dixit,Robert S. Pindyck +1 more
TL;DR: In this article, Dixit and Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made.
Journal ArticleDOI
The Pricing of Options on Assets with Stochastic Volatilities
John Hull,Alan White +1 more
TL;DR: In this article, the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price, and the solution of this differential equation is independent if (a) the volatility is a traded asset or (b) volatility is uncorrelated with aggregate consumption, if either of these conditions holds, the risk-neutral valuation arguments of Cox and Ross [4] can be used in a straightfoward way.
Journal ArticleDOI
Investment Under Uncertainty
TL;DR: This article defined investment as the act of incurring an immediate cost in the expectation of future rewards, i.e., the payments it must make to extract itself from contractual commitments, including severance payments to labor, are the initial expenditure, and the prospective reward is the reduction in future losses.
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The stochastic behavior of commodity prices: Implications for valuation and hedging
TL;DR: In this article, the authors compare three models of the stochastic behavior of commodity prices that take into account mean reversion, in terms of their ability to price existing futures contracts, and their implication with respect to the valuation of other financial and real assets.
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Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk
TL;DR: In this paper, the authors used a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels and found that over the period from 1962 to 1997 there has been a noticeable increase in firm-level volatility relative to market volatility.