Skip Navigation


IMA Journal of Management Mathematics Advance Access originally published online on April 26, 2007
IMA Journal of Management Mathematics 2007 18(4):353-369; doi:10.1093/imaman/dpm019
This Article
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
18/4/353    most recent
dpm019v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Hyndman, C. B.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The authors 2007. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.

Gaussian factor models—futures and forward prices

Cody B. Hyndman{dagger}

Department of Mathematics and Statistics, Concordia University, 1455 boulevard de Maisonneuve Ouest, Montréal, Québec, Canada H3G 1M8

{dagger} Email: hyndman{at}mathstat.concordia.ca

Received on 31 July 2006. Accepted on 19 March 2007.

We completely characterize the futures price and forward price of a risky asset (commodity) paying a stochastic dividend yield (convenience yield). The asset (commodity) price is modelled as an exponential affine function of a Gaussian factors process, while the interest rate and dividend yield are affine functions of the factors process. The characterization we provide is based on the method of stochastic flows. We believe this method leads to simpler and more clear-cut derivations of the futures price and forward price formulae than alternative methods. Hedging a long-term forward contract with shorter term futures contracts and bonds is also examined.

Keywords: futures price; forward price; stochastic flows; factor models; Gaussian state variables


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.