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Showing papers on "Spot contract published in 2000"


Journal ArticleDOI
TL;DR: In this article, the determinats of contract terms on bank revolving credit agreements (revolvers) of medium/large publicly traded companies were examined, and the authors found strong interrelationaships between contract terms with significant bi-directorinal relationships between duration and secure status and between the all-in-spread and commitment fees and aunidirectional relationship from both duration and secured status to all in-spread.
Abstract: The paper examines the determinats of contract terms on bank revolving credit agreements (revolvers) of medium/large publicly traded companies. We model the duration (maturity), secured status, and pricing decisions within a simultaneous decision framework, thereby overcoming the biased and inconsistent estimates in prior single equations studies of debt contract terms. We find strong interrelationaships between contract terms with significant bi-directorinal relationships between duration and secure status and between the all-in-spread and commitment fees and aunidirectional relationship from both duration and secured status to all-in-spread. We also illustrate how several single equation studies of contract terms draw incorrect conclusions because of their (inappropriate) assumption that other contract therms and leverage were exogenous. Finally, our results support the hypothesis that the setting of contract terms plays and important role in alleviating contracting problems.

401 citations


Journal ArticleDOI
TL;DR: In this paper, the authors present a simple model implying that futures risk premia depend on both own-market and cross-market hedging pressures and show that hedging pressure also contains explanatory power for returns on the underlying asset, as predicted by the model.
Abstract: We present a simple model implying that futures risk premia depend on both ownmarket and cross-market hedging pressures. Empirical evidence from 20 futures markets, divided into four groups ~financial, agricultural, mineral, and currency! indicates that, after controlling for systematic risk, both the futures own hedging pressure and cross-hedging pressures from within the group significantly affect futures returns. These effects remain significant after controlling for a measure of price pressure. Finally, we show that hedging pressure also contains explanatory power for returns on the underlying asset, as predicted by the model. FUTURES PRICES ARE KNOWN TO DEVIATE from expected future spot prices because of risk premia that traders expect to earn ~or pay! when trading in futures markets. Futures risk premia are important because they affect the costs and benefits of hedging, as well as the diversification benefits that result from including futures in investment portfolios. Also, to the extent that economic agents make their production, storage, and consumption decisions by looking at futures prices as indicators of future spot prices, it is important to know the bias that exists in futures prices. There is an ongoing debate about the determinants of futures risk premia. Futures risk premia are usually related to systematic risk, as in the work of Dusak ~1973!, Black ~1976!, and Jagannathan ~1985!, among others, and to net positions of hedgers in futures markets, which is known as hedging pressure. Hedging pressure results from risks that agents cannot, or do not want to trade because of market frictions such as transaction costs and information asymmetries. The use of hedging pressure as an explanation for the futures price bias dates back to Keynes ~1930! and Hicks ~1939!, and has more recently been incorporated in models that allow both hedging pressure and systematic risk to affect futures prices ~see, e.g., Stoll ~1979! and Hirshleifer ~1988, 1989!!. Carter, Rausser, and Schmitz ~1983! and Bessembinder ~1992! provide empirical evidence for the combined role of the futures con

361 citations


Journal ArticleDOI
TL;DR: This paper presents a stochastic model for the unit commitment that incorporates power trading into the picture and indicates that significant savings can be achieved when the spot market is entered into the problem and when Stochastic policy is adopted instead of a deterministic one.
Abstract: The electric power industry is going through deregulation. As a result, the load on the generating units of a utility is becoming increasingly unpredictable. Furthermore, electric utilities may need to buy power or sell their production to a power pool that serves as a spot market for electricity. These trading activities expose utilities to volatile electricity prices. In this paper, we present a stochastic model for the unit commitment that incorporates power trading into the picture. Our model also accounts for fuel constraints and prices that may vary with electricity prices and demand. The resulting model is a mixed-integer program that is solved using Lagrangian relaxation and Bender's decomposition. Using this solution approach, we solve problems with 729 demand scenarios on a single processor to within 0.1% of the optimal solution in less than 10 minutes. Our numerical results indicate that significant savings can be achieved when the spot market is entered into the problem and when stochastic policy is adopted instead of a deterministic one.

240 citations


Journal ArticleDOI
K. Xie1, Y.-H. Song, J. Stonham, Erkeng Yu, Guangyi Liu 
TL;DR: In this article, an integrated optimal spot pricing model is presented, which includes the detailed derivation of optimal nodal specific real-time prices for active and reactive powers, and the method to decompose them into different components corresponding to generation, loss, and many selected ancillary services such as spinning reserve, voltage control and security control.
Abstract: In this paper, an integrated optimal spot pricing model is presented first. The proposed model includes the detailed derivation of optimal nodal specific real-time prices for active and reactive powers, and the method to decompose them into different components corresponding to generation, loss, and many selected ancillary services such as spinning reserve, voltage control and security control. The features of the proposed model are discussed in relationship to existing pricing models and classical economic dispatch. The model is then implemented by modifying existing Newton OPF methods through interior point algorithms, which can effectively avoid "go" "no go" gauge (i.e. highly volatile) in the calculation of spot prices. Case studies on 5-bus and IEEE 30-bus systems are reported to illustrate the proposed method.

166 citations


Proceedings ArticleDOI
04 Jan 2000
TL;DR: Several mean-reversion jump-diffusion models to describe spot prices of electricity are proposed, which incorporate multiple jumps, regime-switching and stochastic volatility into these models in order to capture the salient features of electricity prices due to the physical characteristics of electricity.
Abstract: The article proposes several mean-reversion jump-diffusion models to describe spot prices of electricity. It incorporates multiple jumps, regime-switching and stochastic volatility into these models in order to capture the salient features of electricity prices due to the physical characteristics of electricity. Prices of various electricity derivatives are derived under each model using the Fourier transform methods. The implications of modeling assumptions to electricity derivative pricing are also examined.

91 citations


Journal ArticleDOI
TL;DR: In this paper, the authors proposed a scheduling policy for flexible contracts that allow flexible scheduling of the supply or demand of electric energy, based on the principle of no-arbitrage.
Abstract: This paper is concerned with pricing of electricity contracts that allow flexible scheduling of the supply or demand of electric energy. The contracts are priced based on the principle of no-arbitrage. Variables of the contracts are used to determine arbitrage opportunities and the price of contracts. Pricing of flexible contracts involves a scheduling policy. By representing the spot price with an appropriate stochastic process, the scheduling policy can be found using stochastic dynamic programming. Simulation examples illustrate the tradeoffs between prices and scheduling flexibility.

86 citations


Journal ArticleDOI
TL;DR: In this article, the forward rate, the spot rate, and the forward premium follow nearly non-stationary time series processes, and a simple model fits the data: forward exchange rates are unbiased predictors of subsequent spot rates.
Abstract: Existing literature reports a puzzle about the forward rate premium over the spot foreign exchange rate. The premium is often negatively correlated with subsequent changes in the spot rate. This defies economic intuition and possibly violates market efficiency. Rational explanations include non-stationary risk premia and econometric mis-specifications, but some embrace the puzzle as a guide to profitable trading. We suggest there is really no puzzle. A simple model fits the data: forward exchange rates are unbiased predictors of subsequent spot rates. The puzzle arises because the forward rate, the spot rate, and the forward premium follow nearly non-stationary time series processes. We document these properties with an extended sample and show why they give the delusion of a puzzle.

77 citations


Journal ArticleDOI
TL;DR: In this article, the authors provide an empirical description of the relationship between the trading system operated by a stock exchange and the trading behavior of heterogeneous investors who use the exchange, using the cost-of-carry model of futures prices.
Abstract: This paper provides an empirical description of the relationship between the trading system operated by a stock exchange and the trading behaviour of heterogeneous investors who use the exchange. The recent introduction of SETS in the London Stock Exchange provides an excellent opportunity to study the impact of an electronic trading system upon traders who use the exchange. Using the cost-of-carry model of futures prices we estimate (non-linearly) the transaction costs and trade speeds faced by arbitragers who take advantage of mispricing of FTSE100 futures contracts relative to the spot prices of the stocks that make up the FTSE100 stock index. We divide the sample period into pre-SETS and post-SETS sample periods and conduct a comparative study of arbitrager behaviour under different trading systems. The results indicate that there has been a significant reduction in the level of transaction costs faced by arbitragers and in the degree of transaction cost heterogeneity. Finally, generalised impulse response functions show that both spot and futures prices adjust more quickly in the post-SETS period. These results suggest that both spot and futures markets have become more efficient under SETS.

67 citations


Journal ArticleDOI
TL;DR: In this paper, the authors develop an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information, and generate time-tomaturity patterns in open interest and spot price volatility that are consistent with empirical findings.
Abstract: This paper develops an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information. Equilibrium return and trading patterns are examined. ~1! In markets where the information asymmetry among investors is small, the return volatility of a futures contract decreases with time-to-maturity ~i.e., the Samuelson effect holds!. ~2! However, in markets where the information asymmetry among investors is large, the Samuelson effect need not hold. ~3! Additionally, the model generates rich time-tomaturity patterns in open interest and spot price volatility that are consistent with empirical findings. AN ISSUE CENTRAL TO THE ANALYSIS of futures markets is the relationship between speculation and futures price volatility. A long line of models ~see, e.g., Grossman ~1977!, Bray ~1981!! have tried to understand the effects of speculation on futures price volatility. This line of research is economically relevant as speculative trades appear to be an important determinant of volatility in futures markets. For instance, Roll ~1984! finds that public information accounts for only a fraction of the movement in orange juice futures prices, which suggests that investors bring their own private information into the market through their trades. Unfortunately, existing models of speculation in futures are essentially static ones and cannot speak to a number of interesting aspects of returns and trading in futures markets. An example is the relationship between the price volatility and the timeto-maturity of a futures contract. The analysis of this issue is an important one and has a long history. Assuming the existence of a representative investor and an exogenous spot price process, Samuelson ~1965! shows that when there is a mean-reverting component in the spot price process and no

64 citations


Posted ContentDOI
TL;DR: In this paper, the authors use a spatial model and a non-cooperative game approach to show that processors can use exclusive contracts to manipulate the spot price in certain situations, and they show that in markets where the spatial dimension is less important, captive supplies are ineffective as barriers to competition because firms have incentive to "jump" across a captive supply region to procure the farm.
Abstract: Exclusive contracts (often called "captive supplies") between processors and farmers are an increasingly important feature of modern agriculture. We study an interesting empirical regularity occurring in markets that feature both contract and spot exchange: the spot price is inversely related to the incidence of contract use in the market. We use a spatial model and a noncooperative game approach to show that processors can use exclusive contracts to manipulate the spot price in certain situations. Captive supplies in these settings represent geographic buffers that reduce competition among processors. However, in markets where the spatial dimension is less important, captive supplies are ineffective as barriers to competition because firms have incentive to "jump" across a captive supply region to procure the farm

61 citations


Posted Content
TL;DR: In this paper, the authors argue that retail electricity competitors should concentrate on value-added services rather than price competition, and they have not acknowledged the importance of retail price competition and neglected the role of contract markets, and underestimated the costs and disadvantages of this proposed obligation.
Abstract: Joskow, P. and others propose that, with the opening of retail electricity markets, distribution utilities should be required to enable residential customers to buy at (averaged) wholesale spot market prices. They argue that retail electricity competitors should concentrate on value-added services rather than price competition. However, they have not acknowledged the importance of retail price competition, neglected the role of contract markets, and underestimated the costs and disadvantages of this proposed obligation. Recent experience in San Diego illustrates some of the problems. An alternative policy of maximum caps has been adopted in the UK that is facilitating a transition to a competitive regulated residential retail market.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the relationship between freight cash and futures prices using cointegration econometrics and found that the BIFFEX futures market is unbiased and hence efficient for the current, one, two, and quarterly contract horizons.
Abstract: The relationship between freight cash and futures prices is investigated using cointegration econometrics. Results illustrate that the BIFFEX futures market is unbiased, and hence efficient for the current, one, two, and quarterly contract horizons. Since the futures contract is based on an index of various shipping routes, which has undergone several changes since its inception, stability in the relationship between the spot and futures rates is investigated using rolling cointegration techniques. Results indicate that the futures contract appears to have become more efficient over time in predicting the spot rate, and that the decrease in trading volume found in the BIFFEX market is not driven by a lack of efficiency in this market. Rather, the decrease in futures trading might be attributed to the growth rate of the freight forward market. This article incorporates the long‐run cointegrating relationships between cash and futures prices in a forecasting model and compares the forecasting performance of this model with several alternatives. It is found that while the futures price is the best predictor of future spot rates for the current‐month contract, time‐series models can outperform the futures contract at longer contract horizons. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:545–571, 2000.

Journal ArticleDOI
George Hall1, John Rust1
TL;DR: In this article, the authors introduce a new detailed dataset of high-frequency observations on inventory investment by a U.S. steel wholesaler and demonstrate that the firm's inventory investment behavior at the product level is well-approximated by an optimal trading strategy from the solution to a nonlinear dynamic programming problem with two continuous state variables and one continuous control variable that is subject to frequently binding inequality constraints.

Journal ArticleDOI
TL;DR: The performance of the futures and the spot market for electricity in England and Wales (EW) and in the Nordic countries have significant differences in terms of volumes traded and evolution of prices.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated the long-term and short-term relationship between German and French heating oil prices in dollars, the Rotterdam spot price for the same product and the DM/US$ and FF/US $ exchange rates during the period from January 1987 to December 1997.

Patent
01 Dec 2000
TL;DR: In this paper, market liquidity for service-based commodities is established by fixing contract maturity dates and directing spot market trades to these fixed dates, and users may submit quote proposals (e.g., bid or offers) or quote acceptances.
Abstract: Market liquidity for service-based commodities is established by fixing contract maturity dates and directing spot market trades to these fixed dates. Service contracts have the following characteristics: a specific duration during which the service is to be provided, a specific service quality, a specific service delivery date, a specific service maturity date and a specific delivery location. The contract maturity dates are consistent with forward contract delivery dates, preferably, monthly or quarterly. Unlike a traditional goods-based futures contract, each forward contract, after delivery, does not stop trading but continues to trade on spot markets until maturity. Market information for each type of service contract is provided to users of an exchange system, preferably implemented within a publicly available network, such as the Internet or World Wide Web. Based on this market information, users may submit quote proposals (e.g., bid or offers) or quote acceptances.

Patent
11 Apr 2000
TL;DR: In this article, a system for trading commodity futures contracts and options is provided, which includes a user account system that has user-entered trade data, such as to buy a commodity futures contract for copper.
Abstract: of the Disclosure A system for trading commodity futures contracts and options is provided. The system includes a user account system that has user-entered trade data, such as to buy a commodity futures contract for copper. A user information system is connected to the user account system and provides commodities trading data to users, such as a description of what a commodity futures contract is, and how copper prices have historically fluctuated. A trading controls system connected to the user account system receives user account data from the user account system and inhibits the user-entered trade data in response to the user account data.

Journal ArticleDOI
TL;DR: This article showed that the forward discount is a poor predictor of the rate of currency depreciation and that covered interest differential (interest differential minus forward discount) tends to have an opposite sign to and vary inversely with interest differential.
Abstract: The foreign exchange market efficiency hypothesis is the proposition that prices fully reflect information available to market participants, i.e. hedged interest-arbitrageurs and speculators, and there are no opportunities for the hedgers or the speculators to make super-normal profits, i.e. both speculative efficiency and arbitraging efficiency exist. Numerous previous studies have tested for speculative efficiency and arbitraging efficiency by testing the following two hypotheses respectively: (i) the forward discount is a good predictor of the change in the future spot rate (implying covered interest parity (CIP), uncovered interest parity and rational expectations - all hold) and (ii) the forward discount tends to be equal to the interest differential (implying that CIP holds). It will be shown in this study that the hypotheses (i) and (ii) are valid null hypotheses for speculative efficiency and arbitraging efficiency respectively only if the following two set of assumptions hold: (a) there is no risk premium and no transaction costs and (b) that expectations are unbiased, efficient, firmly held and identical across agents. Thus, underlying the hypotheses (i) and (ii) above is the joint hypothesis that both set of assumptions hold. The rejection of UIP or CIP would simply mean the rejection of this joint hypothesis and not market efficiency. This study also provides a simple rationale for Stein (1965) model in which the fulfilment of covered and uncovered interest parities is unnecessary for foreign exchange market efficiency, even without transaction costs, provided that economic agents hold different expectations concerning exchange and political risks. Using the data on the interest rates and the spot and forward exchange rates for six OECD countries, for the period January 1982-June 1996, this study shows that the forward discount is a very poor predictor of the rate of currency depreciation and that covered interest differential (interest differential minus forward discount) tends to have an opposite sign to and vary inversely with interest differential. These results are inconsistent not only with both the hypotheses of speculative efficiency (based on UIP) and arbitraging efficiency (based on CIP) but also with the Mundell-Flemming proposition concerning capital movements. However, once the role of un-hedged arbitrageurs is recognized, the above results would be perfectly consistent with the Mundell-Flemming proposition. The un-hedged arbitrageurs are speculators who happen to find that they derive greater profit from un-hedged investment in a country of which the interest differential is in favour than from selling that country's currency forward and the condition for the existence of these un-hedged arbitrageurs is that they individually face different transaction costs in their forward exchange dealings. Three reasons for the unexpected relationship between covered and uncovered interest differential are given. The first involves the over-reaction by the government to inflation in fixing the forward discount. The second involves the over-reaction by the speculators to the interest differential in predicting currency depreciation. The third involves the failure of the government to prevent interest rate differential from failing to keep pace with inflation differential. It is argued that the third reason is the most plausible.

Journal ArticleDOI
TL;DR: Moraleda and Pelsser as mentioned in this paper conducted a comparison of five of the most common interest rate models, including some of each type, and found that the models of the spot rate appear to outperform those based on forward rates, with the Black-Karasinski model doing the best overall.
Abstract: Valuation theory for derivatives based on interest rates and bond prices continues to be in flux. A wide variety of models have been introduced over the years, and many are still actively used. Some are based on modeling the behavior of spot interest rates, with enough structure that the model is constrained to be consistent with the current market term structure. Others begin with the observed term structure and model behavior of the forward rates embedded in it. Moraleda and Pelsser conduct a comparison of five of the most common interest rate models, including some of each type. The data used include U.S. spot interest rates for maturities out to ten years and dollar cap and floor prices. The authors find that the models of the spot rate appear to outperform those based on forward rates, with the Black-Karasinski model doing the best overall.

Posted Content
TL;DR: In this article, the authors show that the forward rate, the spot rate, and the forward premium all follow non-stationary (or nearly so) time series processes, and that forward rate is a noisy predictor of subsequent spot rates.
Abstract: Existing literature reports an empirical puzzle about the foreign exchange forward premium, the spread between the forward rate and the concurrently-observed spot exchange rate. The premium is often negatively correlated with subsequent changes in the spot rate. This defies economic intuition and possibly violates market efficiency. Various explanations have been offered, ranging from non-stationary risk premia through econometric mis-specifications. Some researchers have accepted the puzzle as a fact of inefficient foreign exchange markets, a phenomenon that provides profitable trading opportunities. We suggest there is really no puzzle at all. The simplest conceivable model adequately fits the data; forward exchange rates are unbiased predictors of subsequent spot rates. The puzzle has arisen because (a) the forward rate, the spot rate, and the forward premium all follow non-stationary (or nearly so) time series processes, and (b) the forward rate is a noisy predictor. We document these features with an extended sample and show how they can give the delusion of a puzzle.

Proceedings ArticleDOI
16 Jul 2000
TL;DR: In this paper, four alternative fixed cost allocation schemes to determine the spot prices of electricity in a centralised market with a complex bidding structure are presented, where payment adequacy constraints are introduced in the pricing mechanisms to ensure that all generators recover their bidding prices.
Abstract: This paper presents four alternative fixed cost allocation schemes to determine the spot prices of electricity in a centralised market with a complex bidding structure. Payment adequacy constraints are introduced in the pricing mechanisms to ensure that all generators recover their bidding prices. The numeric results show that by adopting different fixed cost allocation schemes, the total electricity prices and hence the customers' payments can vary significantly. Furthermore, different schemes yield significant changes in the generators' profitability. The issues discussed in this paper are illustrated using 10-, 26- and 110-unit systems.

Journal ArticleDOI
TL;DR: In this paper, it is shown that sometimes the buyer prefers to wait and buy on the spot market than to offer a long-term contract, and that when the seller rejects a contract offer or the buyer chooses not to make one, the seller will not make efficient investments.
Abstract: In a typical procurement setup, several recent papers have shown that when complete contracting is not possible, simple, noncontingent contracts may suffice to solve the under-investment problem. This paper points out that a noncontingent contract offer such as a fixed-price contract may induce the seller to acquire information on the future course of costs and only to accept the offer if the cost is low. It is shown that sometimes the buyer prefers to wait and buy on the spot market than to offer a long-term contract. When the seller rejects a contract offer or the buyer chooses not to make one, the seller will not make efficient investments because he expects to be held up on the spot market.

Book ChapterDOI
01 Jan 2000
TL;DR: In this paper, the authors draw from observations of other deregulated industries to describe the likely transition to competitive retail electricity markets, and present conclusions of how successful energy service providers might be able to differentiate their products and avoid the commodity trap of price wars and low profit margins.
Abstract: This paper draws from observations of other deregulated industries to describe the likely transition to competitive retail electricity markets. The paper describes risk-differentiated products and lays out the principles for risk-based pricing. The paper also addresses the strategy of bundling value-added services with retail electricity. Finally, the paper presents conclusions of how successful energy service providers might be able to differentiate their products and avoid the “commodity trap” of price wars and low profit margins.

Journal ArticleDOI
TL;DR: In this paper, the authors explored whether knowledge of the time-series properties of the premium in the pricing of forward foreign exchange can be usefully exploited in forecasting future spot exchange rates.
Abstract: This paper explores whether knowledge of the time-series properties of the premium in the pricing of forward foreign exchange can be usefully exploited in forecasting future spot exchange rates. Signal-extraction techniques, based on recursive application of the Kalman filter, are used to measure the premium. Predictions using premium models compare favourably with those obtained from the use of the forward rate as a predictor of the future spot rate. The results also provide an interesting description of the time-series properties of the premium

Book ChapterDOI
01 Jan 2000
TL;DR: In the first part of this book, we have investigated various spot rate models which use the spot interest rate as a basis for modelling as discussed by the authors, but these models are set up in terms of a mathematically convenient rate that does not exist in practice, valuation formula for real world instruments like caps, floors and swaptions tend to be fairly complicated.
Abstract: In the first part of this book, we have investigated various spot rate models which use the spot interest rate as a basis for modelling. The mathematically convenient choice for the spot interest rate leads to models which are particularly tractable. However, since these models are set up in terms of a mathematically convenient rate that does not exist in practice, valuation formula for real-world instruments like caps, floors and swaptions tend to be fairly complicated. To calibrate the spot rate models to the prices of these instruments we need complicated numerical procedures and the results are not always satisfactory.

31 Jul 2000
TL;DR: In this article, a decomposition of producer milk prices across time, space, and market outlet suggests that reliability of outlet is worth up to 17 % of the spot price, in addition to waiting a month to be paid.
Abstract: season is also a consideration, and credit sales typically are matched with a commitment to be a steady customer. Two salient phenomena are observed: reported unit milk prices differ widely within the same location and time period, and spot sales for cash tend to be at a higher unit price than sales on monthly credit. We hypothesize that dairy farmers in the Nairobi milk shed choose market outlets and levels of cash sales that reduce transactions costs and help assure reliable future outlets, at the expense of current income. A decomposition of producer milk prices across time, space, and market outlet suggests that reliability of outlet is worth up to 17 % of the spot price, in addition to waiting a month to be paid. Risks of credit default are illustrated by predicted weekly credit prices that are 5 % lower than monthly credit prices. Data from 21 smallholder farms monitored daily over one year are used to estimate a twolimit Tobit model of the role of the characteristics of market outlets and producers in explaining the share of producer output sold for cash rather than credit. Younger, more educated producers, receiving a regular off-farm salary, and near market centres are shown to be more likely to accept sales on credit. Older producers with more experience but less formal education are more likely to sell for cash rather than credit. The power of the model to explain different prices for milk in the same location and week suggests that such price differences viewed unidimensionally are not evidence of lack of market integration as conventionally defined, but an outcome of differential transactions costs and perceptions of risk by different producers.

Posted Content
TL;DR: In this article, a structural model is developed to simulate the probability distributions of corn prices by month, and the model also generates futures prices as conditional expectations of spot prices at contract maturity.
Abstract: A structural model is developed to simulate the probability distributions of corn prices by month. The intent is to determine the relationship between model specifications, based on a rational expectations competitive storage framework, and the probability distributions of monthly prices. Specifically, can a structural model generate corn prices with characteristics that are consistent with those observed in the 1990s? The model in this paper produces cash prices that inter alia have positively skewed distributions where the mean and variance increase over the storage season. The model also generates futures prices as conditional expectations of spot prices at contract maturity. The variances of these futures prices have realistic time-to-maturity and seasonal effects. The model is solved and simulated so that the consequences of making the model increasingly complex can be determined. A “curse of dimensionality” is inevitable with the increased complexity, resulting in lengthy computing times, but the final specification generates plausible probability distributions. In contrast to other models in the literature, our specification does not depend on the unrealistic assumption of zero stock-levels to generate skewed price distributions and the Abackwardation@ commonly observed in prices between crop years. Non-linearity in the supply of storage is achieved by modeling convenience yield. The model can be used to depict price behavior conditional on varying levels of the state variables, e.g., for large or small stock levels. Having created realistic probability distributions of prices, a logical next step is to use the distributions to appraise marketing strategies to manage price risk for corn.

Proceedings ArticleDOI
04 Apr 2000
TL;DR: In this paper, the influence of different parameters on the electricity prices in the liberalized electricity market in Finland was studied, and the main emphasis was placed on climatic factors, rainfall and temperature.
Abstract: The aim of this study was to find out the influences of different parameters on the electricity prices in the liberalized electricity market in Finland. The main emphasis was placed on climatic factors, rainfall and temperature. In this study, the spot price of electricity was compared to rainfall and temperature. The spot price is the co-Scandinavian electricity exchange Nord Pool price in Helsinki. The spot price is highly dependent on the long term rainfall. This is due to the fact that in Nordic countries a great part of electricity is produced by hydropower. The temperature seems to have very big short-term effects on the spot price. Also heavy rains in winter have short-term effects on the spot price in Finland. The rains and storms that occur in summer don't seem to have any real effect on the spot price.


Book ChapterDOI
01 Jan 2000
TL;DR: Although some economists still enjoy insisting that oil is inexhaustible, geological authorities are increasingly expressing the belief that this resource is painfully finite in an economic sense, because in some parts of the world it might become too costly to produce in the amounts supplied earlier as discussed by the authors.
Abstract: Although some economists still enjoy insisting that oil is inexhaustible, geological authorities are increasingly expressing the belief that this resource is painfully finite in an economic sense, because in some parts of the world it might become too costly to produce in the amounts supplied earlier.