Bulletin of the
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ISSN(Print) 1015-8634 ISSN(Online) 2234-3016

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Bull. Korean Math. Soc. 2014; 51(6): 1791-1804

Printed November 30, 2014

https://doi.org/10.4134/BKMS.2014.51.6.1791

Copyright © The Korean Mathematical Society.

Commodity futures term structure model

Hyeong In Choi, Song-Hwa Kwon, Jun Yeol Kim, and Du-Seop Jung

Seoul National University, The Catholic University of Korea, KYOBO Securities Co., Ltd., Korea Investment \& Securities Co., Ltd.

Abstract

A new approach to the commodity futures term structure model is introduced. The most salient feature of this model is that, once the interest rate model is given, the commodity futures price volatility is the only quantity that completely determines the model. As a consequence this model enables one to do away with the drudgeries of having to deal with the convenience yield altogether, which has been the most thorny point so far.

Keywords: commodity futures, term structure, convenience yield, volatility, European option, HJM

MSC numbers: Primary 60H30, 91G80

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