A cointegrated regime-switching model approach with jumps for commodity futures prices

Different energy commodities show cointegrated price movements that are impacted by, for example, jumps in the market or seasonality effects. Furthermore, the movement of the term structure in time shows evidence of cointegration. Observing commodity futures over time there is also evidence for different states of the underlying volatility of the futures. In this paper we therefore allow for cointegration of the term structure within a multi-factor model which includes seasonality as well as jumps in the price processes of futures with different maturities. The seasonality in this model is realized via a deterministic function, and the jumps are represented with thinned-out compound Poison processes. The model also includes a regime-switching approach that is modeled through a Markov chain and extends the class of geometric models. We show how the model can be calibrated to empirical data and give some practical applications.     «

Different energy commodities show cointegrated price movements that are impacted by, for example, jumps in the market or seasonality effects. Furthermore, the movement of the term structure in time shows evidence of cointegration. Observing commodity futures over time there is also evidence for different states of the underlying volatility of the futures. In this paper we therefore allow for cointegration of the term structure within a multi-factor model which includes seasonality as well as jum...     »