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Conference Paper: Price, Production, Storage and Futures Markets

TitlePrice, Production, Storage and Futures Markets
Authors
Issue Date2001
Citation
The 28th European Finance Association Annual Meeting, Barcelona, Spain, 22-25 August 2001 How to Cite?
AbstractWe model seasonal, uncertain production of a commodity, with speculative storage. We allow agents to be risk averse, and we allow planned production to respond to price prospects. We also explicitly consider the presence or absence of a futures market in the commodity. Our technique involves a two phase extension of the usual dynamic program, to solve for the equilibrium price and inventory held by storers. In our extra phase, we numerically solve the First Order Conditions for the planned production and futures position taken by the producer. Our main conclusions are: First, we confirm that storage reduces the price volatility, but the availability of futures is important in making storage feasible. Second, the producer takes a longer futures position, in many cases positive (i.e. he hedges by going long the future), than he would in the absence of storage. Third, futures increase average production, but this effect is generally less when storage is available, and might be quite marginal in cases when the producer's optimal futures position is near zero.
Persistent Identifierhttp://hdl.handle.net/10722/112283
SSRN

 

DC FieldValueLanguage
dc.contributor.authorCarverhill, APen_HK
dc.date.accessioned2010-09-26T03:25:28Z-
dc.date.available2010-09-26T03:25:28Z-
dc.date.issued2001en_HK
dc.identifier.citationThe 28th European Finance Association Annual Meeting, Barcelona, Spain, 22-25 August 2001-
dc.identifier.urihttp://hdl.handle.net/10722/112283-
dc.description.abstractWe model seasonal, uncertain production of a commodity, with speculative storage. We allow agents to be risk averse, and we allow planned production to respond to price prospects. We also explicitly consider the presence or absence of a futures market in the commodity. Our technique involves a two phase extension of the usual dynamic program, to solve for the equilibrium price and inventory held by storers. In our extra phase, we numerically solve the First Order Conditions for the planned production and futures position taken by the producer. Our main conclusions are: First, we confirm that storage reduces the price volatility, but the availability of futures is important in making storage feasible. Second, the producer takes a longer futures position, in many cases positive (i.e. he hedges by going long the future), than he would in the absence of storage. Third, futures increase average production, but this effect is generally less when storage is available, and might be quite marginal in cases when the producer's optimal futures position is near zero.-
dc.languageengen_HK
dc.relation.ispartofEuropean Finance Association Annual Meetingen_HK
dc.titlePrice, Production, Storage and Futures Marketsen_HK
dc.typeConference_Paperen_HK
dc.identifier.emailCarverhill, AP: carverhill@business.hku.hken_HK
dc.identifier.authorityCarverhill, AP=rp01042en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.2139/ssrn.276181-
dc.identifier.hkuros108771en_HK
dc.identifier.ssrn276181-

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