Maximal Gaussian Affine Models for Multiple Commodities: A Note
Jaime Casassus; Peng Liu; Ke Tang.
Documento de Trabajo IE-PUC, N° 456, 2014.
Abstract: This paper extends the maximal affine models of single assets to a multi-commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion paper Casassus, Liu, and Tang (2013). This cross-commodity relationship is a feedback effect that may generate substantial comovement among long-run commodity prices, a fact that is consistent with many empirical studies.
Keywords: maximal affine models, Gaussian models, multiple commodities, futures prices.
JEL Classification: G13, C33