The Commodity Futures Contract Pricing Using Spot Price Dynamics: Implication of Models in Iran’s Gold Futures Market

Document Type : Research Paper

Authors

1 Assistant Professor in Economics and Banking, Institute of Hasht Behesht

2 Professor in Economics, University of Isfahan

3 Associate Professor in Economics, University of Isfahan

4 Associate Professor in Statistics, University of Isfahan

Abstract

Futures contract is one of the most important derivatives that is used in financial markets in all over the world to buy or sell an asset or commodity in the future. Pricing of this tool depends on expected price of asset or commodity at the maturity date. According to this, theoretical futures pricing models try to find this expected price in order to use in the futures contract. So in this article, three futures pricing models have been considered. In the first model, Ross (1995) and Schwartz (1997) one-factor pricing model without spot price jump will be presented. In two other models, expansion of this model with using of jump-diffusion processes and considering the stochastic jump in spot price will be presented. In these models is assumed that magnitude of spot price jump has an exponential distribution or uniform distribution. Then, to experimental study of theoretical models, Iran’s gold coins futures market data will be used and parameters are stimated with Kalman filter algorithm and maximum likelihood function.

Keywords

References

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Quarterly Journal of Applied Theories of Economics
Volume 2, Issue 3 - Serial Number 3
December 2015
Pages 145-164

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