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An Equilibrium Model for Commodity Prices with Regime Switching Reserve Dynamics
Department of Economics, Knut Wicksell Centre for Financial Studies School of Economics and Management, Lund University, Lund Sweden.
2014 (English)Report (Other (popular science, discussion, etc.))
Abstract [en]

We explore the implications for asset prices and implied volatilities in an equilibrium model of commodity production. Production of the commodity can be carried out in one of two regimes. In the first regime the reserves are set in constant decline while in the second regime new additions to the reserve base are made. The optimal production rule is to switch regime when the stochastic revenue process of the producer hits certain barrier values. As a consequence of the optimal production rule equilibrium spot prices also become regime switching. The shapes of forward curves and implied volatilities are strongly dependent on the level of the stochastic revenue process.

Place, publisher, year, edition, pages
SSRN , 2014. , p. 33
Series
SSRN Working paper
Keywords [en]
Equilibrium, Commodity, Optimal switching
National Category
Economics
Identifiers
URN: urn:nbn:se:oru:diva-76685DOI: 10.2139/ssrn.2372626OAI: oai:DiVA.org:oru-76685DiVA, id: diva2:1353878
Note

JEL Classification: Q30, Q40, G11, G13, M11, C61, C41, C44

Available from: 2019-09-24 Created: 2019-09-24 Last updated: 2019-09-24Bibliographically approved

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An Equilibrium Model for Commodity Prices with Regime Switching Reserve Dynamics(250 kB)62 downloads
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Larsson, Karl

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf