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Post by Sapphire Capital on Jan 29, 2009 23:01:49 GMT 4
Commodity Derivatives Pricing with an Endogenous Convenience Yield Market Price of Risk Sami Attaoui Rouen School of Management Pierre Six Université Paris I Panthéon-Sorbonne November 8, 2008 Abstract: We develop a partial equilibrium model of the term structure of storable commodity futures and options on futures, where the stochastic movements of the convenience yield are acknowledged. Moreover, as specified in recent papers about commodity derivatives pricing, interest rates and risk premia of primitives assets are assumed to evolve randomly over time. However, contrary to the existing literature, the risk premium of the convenience yield is derived endogenously. This framework makes it possible to analyze agent preference structure, investment horizon impact on this premium. Finally, closed form solutions for the prices of futures and options on futures obtain, making our model useful for practical commodity risk management. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1297867_code950245.pdf?abstractid=1297867&mirid=1
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