AUTHOR=Kanamura Takashi 

TITLE=The role of incompleteness in commodity futures markets

JOURNAL=Frontiers in Applied Mathematics and Statistics

VOLUME=1

YEAR=2015

URL=https://www.frontiersin.org/journals/applied-mathematics-and-statistics/articles/10.3389/fams.2015.00011

DOI=10.3389/fams.2015.00011

ISSN=2297-4687

ABSTRACT=<p>This paper proposes a convenience yield-based pricing for commodity futures, which embeds incompleteness of commodity futures markets in convenience yields. By using the pricing method, we conduct empirical analyses of the prices of WTI crude oil, heating oil, and natural gas futures traded on the NYMEX in order to assess the incompleteness of energy futures markets. We show that the fluctuation from the incompleteness is partly driven by the fluctuation from convenience yields. In addition, it is shown that the incompleteness of natural gas futures market is more highlighted than the incompleteness of WTI crude oil and heating oil futures markets. We apply the implied market price of risk from the NYMEX data to pricing an Asian call option written on WTI crude oil futures. Finally, we try to apply the market incompleteness analysis to the post-crisis periods after 2009.</p>