Commodity price dynamics and derivatives valuation: a review

Back, J. and Prokopczuk, M. (2013) Commodity price dynamics and derivatives valuation: a review. International Journal of Theoretical and Applied Finance, 16 (6). ISSN 1793-6322 doi: 10.2139/ssrn.2133158

Abstract/Summary

This paper reviews extant research on commodity price dynamics and commodity derivatives pricing models. In the first half, we provide an overview of stylized facts of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second half, we review existing derivatives pricing models and discuss how the peculiarities of commodity markets have been integrated in these models. We conclude the paper with a brief outlook on important research questions that need to be addressed in the future.