Futures-based models in commodity markets: from the Samuelson effect to implied correlation.
Seminar in Insurance and Economics
SPEAKER: Bertrand Tavin (Emlyon Business School).
TITLE: Futures-based models in commodity markets: from the Samuelson effect to implied correlation.
ABSTRACT: In this talk, we present a class of futures-based models that are able of combining features displayed by commodity futures and options contracts, such as the Samuelson effect, the volatility smile and seasonality in volatility. We present the joint characteristic function of two futures contracts in this class of models. This result is especially convenient for the pricing of calendar spread options which are popular contracts in commodity markets. We discuss the empirical performance of this class of models in terms of option pricing and implied correlation. The latter being studied in a rigorous framework. We then focus on the issue of modelling the seasonality of volatility in agricultural markets. The empirical analysis is carried out using daily futures data from 2007 to 2019 for corn, cotton, soybeans, sugar, and wheat. Our results confirm the need for seasonality when modelling agricultural markets. The presentation will be based on the following published articles, as well as ongoing research projects: Schneider & Tavin (2024), Coqueret & Tavin (2020), and Schneider & Tavin (2018).