Subordinated affine structure models for commodity future prices

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dc.contributor.authorKateregga, Michael
dc.contributor.authorMataramvura, Sure
dc.contributor.authorTaylor, David
dc.date.accessioned2018-10-11T06:42:07Z
dc.date.available2018-08-20
dc.date.available2018-10-11T06:42:07Z
dc.date.issued2018-08-20
dc.description.abstractTo date the existence of jumps in different sectors of the financial market is certain and the commodity market is no exception. While there are various models in literature on how to capture these jumps, we restrict ourselves to using subordinated Brownian motion by an α-stable process, α ∈ (0,1), as the source of randomness in the spot price model to determine commodity future prices, a concept which is not new either. However, the key feature in our pricing approach is the new simple technique derived from our novel theory for subordinated affine structure models. Different from existing filtering methods for models with latent variables, we show that the commodity future price under a one factor model with a subordinated random source driver, can be expressed in terms of the subordinator which can then be reduced to the latent regression models commonly used in population dynamics with their parameters easily estimated using the expectation maximisation method. In our case, the underlying joint probability distribution is a combination of the Gaussian and stable densities.en_ZA
dc.identifier.apacitationKateregga, M., Mataramvura, S., & Taylor, D. (2018). Subordinated affine structure models for commodity future prices. <i>Cogent Economics & Finance</i>, http://hdl.handle.net/11427/28922en_ZA
dc.identifier.chicagocitationKateregga, Michael, Sure Mataramvura, and David Taylor "Subordinated affine structure models for commodity future prices." <i>Cogent Economics & Finance</i> (2018) http://hdl.handle.net/11427/28922en_ZA
dc.identifier.citationKateregga, M., Mataramvura, S., Taylor, D. 2018-08-20. Subordinated affine structure models for commodity future prices. Cogent Economics & Finance.en_ZA
dc.identifier.issn2332-2039en_ZA
dc.identifier.ris TY - Journal Article AU - Kateregga, Michael AU - Mataramvura, Sure AU - Taylor, David AB - To date the existence of jumps in different sectors of the financial market is certain and the commodity market is no exception. While there are various models in literature on how to capture these jumps, we restrict ourselves to using subordinated Brownian motion by an α-stable process, α ∈ (0,1), as the source of randomness in the spot price model to determine commodity future prices, a concept which is not new either. However, the key feature in our pricing approach is the new simple technique derived from our novel theory for subordinated affine structure models. Different from existing filtering methods for models with latent variables, we show that the commodity future price under a one factor model with a subordinated random source driver, can be expressed in terms of the subordinator which can then be reduced to the latent regression models commonly used in population dynamics with their parameters easily estimated using the expectation maximisation method. In our case, the underlying joint probability distribution is a combination of the Gaussian and stable densities. DA - 2018-08-20 DB - OpenUCT DP - University of Cape Town J1 - Cogent Economics & Finance LK - https://open.uct.ac.za PB - University of Cape Town PY - 2018 SM - 2332-2039 T1 - Subordinated affine structure models for commodity future prices TI - Subordinated affine structure models for commodity future prices UR - http://hdl.handle.net/11427/28922 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/28922
dc.identifier.vancouvercitationKateregga M, Mataramvura S, Taylor D. Subordinated affine structure models for commodity future prices. Cogent Economics & Finance. 2018; http://hdl.handle.net/11427/28922.en_ZA
dc.languageengen_ZA
dc.publisherTaylor and Francisen_ZA
dc.publisher.departmentDivision of Actuarial Scienceen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.relation.ispartofseriesResearch papersen_ZA
dc.rightsCreative Commons Attribution 4.0 International (CC BY 4.0)*
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/en_ZA
dc.sourceCogent Economics & Finance
dc.source.urihttps://www.cogentoa.com/journal/economics-and-finance
dc.subject.otherstable distributions
dc.subject.otheraffine structure models
dc.subject.otherlatent regression models
dc.titleSubordinated affine structure models for commodity future pricesen_ZA
dc.typeJournal Articleen_ZA
uct.subject.keywordsstable distributions; affine structure models; latent regression modelsen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceArticleen_ZA
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