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Schwartz-Smith Two-Factor Model in the Copper Market: before and after the New Market Dynamics

Goodwin, Dominice LU (2013) NEKN02 20131
Department of Economics
Abstract
This thesis offers a study on the performance of the short-term/long-term model by Schwartz and Smith (2000) in the copper futures market for the period 1993-07-21 to 2013-03-05. The model's performance is evaluated in terms of its ability to model the term structure of copper futures prices, and is for this purpose compared to two one-factor benchmark models, an Orstein-Uhlenbeck process and a geometric Brownian motion process. The estimated model parameters and the generated equilibrium level and short term deviation from the model are analyzed in order to draw conclusions about how the dynamics in the copper market has changed over the last two decades. The results from this study strongly support the use of a two-factor model, like the... (More)
This thesis offers a study on the performance of the short-term/long-term model by Schwartz and Smith (2000) in the copper futures market for the period 1993-07-21 to 2013-03-05. The model's performance is evaluated in terms of its ability to model the term structure of copper futures prices, and is for this purpose compared to two one-factor benchmark models, an Orstein-Uhlenbeck process and a geometric Brownian motion process. The estimated model parameters and the generated equilibrium level and short term deviation from the model are analyzed in order to draw conclusions about how the dynamics in the copper market has changed over the last two decades. The results from this study strongly support the use of a two-factor model, like the short-term/long-term model by Schwartz and Smith (2000), for the purpose of modeling the term structure of copper futures prices and for valuation of copper related investment projects. The results also suggest that there has been a structural change in the price dynamic of the copper market, which began in 2004-2005. (Less)
Please use this url to cite or link to this publication:
author
Goodwin, Dominice LU
supervisor
organization
course
NEKN02 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Schwartz-Smith Two-Factor Model, Copper, Term Structure Model
language
English
id
3809118
date added to LUP
2013-06-12 14:32:13
date last changed
2013-06-12 14:32:13
@misc{3809118,
  abstract     = {This thesis offers a study on the performance of the short-term/long-term model by Schwartz and Smith (2000) in the copper futures market for the period 1993-07-21 to 2013-03-05. The model's performance is evaluated in terms of its ability to model the term structure of copper futures prices, and is for this purpose compared to two one-factor benchmark models, an Orstein-Uhlenbeck process and a geometric Brownian motion process. The estimated model parameters and the generated equilibrium level and short term deviation from the model are analyzed in order to draw conclusions about how the dynamics in the copper market has changed over the last two decades. The results from this study strongly support the use of a two-factor model, like the short-term/long-term model by Schwartz and Smith (2000), for the purpose of modeling the term structure of copper futures prices and for valuation of copper related investment projects. The results also suggest that there has been a structural change in the price dynamic of the copper market, which began in 2004-2005.},
  author       = {Goodwin, Dominice},
  keyword      = {Schwartz-Smith Two-Factor Model,Copper,Term Structure Model},
  language     = {eng},
  note         = {Student Paper},
  title        = {Schwartz-Smith Two-Factor Model in the Copper Market: before and after the New Market Dynamics},
  year         = {2013},
}