Working Paper: NBER ID: w22991
Authors: Gonzalo Cortazar; Cristobal Millard; Hector Ortega; Eduardo S. Schwartz
Abstract: Even though commodity pricing models have been successful in fitting the term structure of futures prices and its dynamics, they do not generate accurate true distributions of spot prices. This paper develops a new approach to calibrate these models using not only observations of oil futures prices, but also analysts’ forecasts of oil spot prices. \nWe conclude that to obtain reasonable expected spot curves, analysts’ forecasts should be used, either alone, or jointly with futures data. The use of both futures and forecasts, instead of using only forecasts, generates expected spot curves that do not differ considerably in the short/medium term, but long term estimations are significantly different. The inclusion of analysts’ forecasts, in addition to futures, instead of only futures prices, does not alter significantly the short/medium part of the futures curve, but does have a significant effect on long-term futures estimations.
Keywords: commodity pricing models; futures prices; analysts forecasts; expected spot prices; risk premiums
JEL Codes: G13; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Analysts' forecasts (G17) | Expected spot prices (G13) |
| Futures prices + Analysts' forecasts (G13) | Expected spot prices (G13) |
| Analysts' forecasts (G17) | Volatility of expected prices (G13) |
| Futures prices (G13) | Expected spot prices (G13) |
| Analysts' forecasts (G17) | Risk premium structure (G19) |
| Futures prices (G13) | Divergence of expected spot prices (G19) |