Maximal Gaussian Affine Models for Multiple Commodities:: A Note

• Jaime Casassus ^[1] ; Peng Liu ^[2] ; Ke Tang ^[3]
  1. [1] Pontificia Universidad Católica de Chile

     Pontificia Universidad Católica de Chile

     Santiago, Chile

     
  2. [2] Cornell University

     Cornell University

     City of Ithaca, Estados Unidos

     
  3. [3] Renmin University of China

     Renmin University of China

     China

     

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• Localización: Documentos de Trabajo ( Instituto de Economía PUC ), ISSN-e 0717-7593, Nº. 456, 2014, págs. 1-20
• Idioma: inglés
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• Resumen

  • 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.