Can limits-to-arbitrage from bounded storage improve commodity term-structure modeling?

摘要

This paper develops and estimates a two-factor competitive storage model for the purpose of pricing commodity futures. The empirical relevance of the model is evaluated for US natural gas and crude oil futures by comparing the pricing performance to reduced form models. Results suggest jump models, both reduced form and economic, improve modeling due to incorporating pricing discontinuities. Furthermore, the economic model precludes carry arbitrage, which appears relevant for pricing natural gas futures. For crude oil, the reduced form models produce superior pricing under nonstationary market conditions, and the economic model produces superior long-dated futures pricing under stationarity.