NATIONAL BUREAU OF ECONOMIC RESEARCH
Pontificia Universidad Católica de Chile
NBER Working Papers and Publications
|June 2013||Commodity and Asset Pricing Models: An Integration|
with Gonzalo Cortazar, Eduardo S. Schwartz: w19167
We present a simple methodology that integrates commodity and asset pricing models. Given current evidence on the financialization of commodity markets, valuable information about commodity risk premiums can be extracted from asset pricing models and used to substantially improve the estimates of expected spot prices provided by current commodity price models. The methodology can be used with any pair of commodity and asset pricing models. An implementation of the methodology is presented using the Schwartz and Smith (2000) two-factor commodity price model and the CAPM. Reasonable expected spot prices are obtained without negative consequences in the model's fit to futures prices.