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Model uncertainty in commodity markets

Abstract:

Agents who acknowledge that their models are incorrectly specified are said to be ambiguity averse, and this affects the prices they are willing to trade at. Models for prices of commodities attempt to capture three stylized features: seasonal trend, moderate deviations (a diffusive factor), and large deviations (a jump factor) both of which mean-revert to the seasonal trend. Here we model ambiguity by allowing the agent to consider a class of models absolutely continuous w.r.t. their referen...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Publisher's Version

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Publisher copy:
10.1137/15M1027243

Authors


Cartea, Á More by this author
Jaimungal, S More by this author
Publisher:
Society for Industrial and Applied Mathematics Publisher's website
Journal:
SIAM Journal on Financial Mathematics Journal website
Volume:
7
Issue:
1
Pages:
1-33
Publication date:
2016
Acceptance date:
2016-10-13
DOI:
ISSN:
1945-497X
Pubs id:
pubs:668386
URN:
uri:f6cc7698-f347-447e-9026-1fbc8b3ff6df
UUID:
uuid:f6cc7698-f347-447e-9026-1fbc8b3ff6df
Local pid:
pubs:668386
Keywords:

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