women as policy makers evidence from a randomized policy experiment in india this paper uses political reservations for women in india to study the impact of women s leadership on policy decisions since the mid 1990 s one third of village council head positions in india have been randomly reserved for a woman in these councils only women could be elected to the position of head village councils are responsible for the provision of many local public goods in rural areas using a dataset we collected on 265 village councils in west bengal and rajasthan we compare the type of public goods provided in reserved and unreserved village councils we show that the reservation of a council seat affects the types of public goods provided specifically leaders invest more in infrastructure that is directly relevant to the needs of their own genders

on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

electricity derivatives pricing with forward looking information in order to increase overall transparency on key operational information power transmission system operators publish an increasing amount of fundamental data including forecasts of electricity demand and available capacity we employ a fundamental model for electricity prices which lends itself well to integrating such forecasts while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae in an extensive futures pricing study the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts thus confirming the general importance of forward looking information for electricity derivatives pricing however we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead

long term spread option valuation and hedging this paper investigates the valuation and hedging of spread options on two commodity prices which in the long run are in dynamic equilibrium i e cointegrated the spread exhibits properties different from its two underlying commodity prices and should therefore be modelled directly this approach offers significant advantages relative to the traditional two price methods since the correlation between two asset returns is notoriously hard to model in this paper we propose a two factor model for the spot spread and develop pricing and hedging formulae for options on spot and futures spreads two examples of spreads in energy markets the crack spread between heating oil and wti crude oil and the location spread between brent blend and wti crude oil are analyzed to illustrate the results

labor tying in a poor agrarian economy a theoretical and empirical analysis in this paper we show how tied labor contrary to its common characterization as a feudal relic and as a symptom of economic stagnation may actually be strengthened by capitalist agricultural development we construct a simple two period theoretical model of a two tiered labor market to show how the proportional importance of voluntary labor tying contracts may increase with yield increasing improvements and with a tightening of the labor market we then provide in support of these hypotheses some general historical as well as more detailed econometric evidence from a variety of cross sectional data in rural india

forward curves scarcity and price volatility in oil and natural gas markets the role of inventory in explaining the shape of the forward curve and spot price volatility in commodity markets is central in the theory of storage developed by kaldor kaldor n 1939 speculation and economic stability the review of economic studies 7 1 27 and working working h 1949 the theory of the price of storage american economic review 39 1254 1262 and has since been documented in a vast body of financial literature including the reference paper by fama and french fama e f and k r french 1987 commodity futures prices some evidence on forecast power premiums and the theory of storage journal of business 60 55 73 on metals the goal of this paper is twofold i validate in the case of oil and natural gas the use of the slope of the forward curve as a proxy for inventory the slope being defined in a way that filters out seasonality ii analyze directly for these two major commodities the relationship between inventory and price volatility in agreement with the theory of storage we find that i the negative correlation between price volatility and inventory is globally significant for crude oil ii this negative correlation prevails only during those periods of scarcity when the inventory is below the historical average and increases importantly during the winter periods for natural gas our results are illustrated by the analysis of a 15 year database of us oil and natural gas prices and inventory

soybean inventory and forward curve dynamics we present two results concerning soybean prices first we exhibit a simple relationship between stocks and price volatility the observation of an increasing price volatility with decreasing inventory is often mentioned in the literature but has so far been documented using a proxy for inventory see fama and french 1987 1988 litzenberger and rabinowitz 1995 instead we reconstruct a yearly quarterly and monthly database of worldwide soybean inventories using aggregate data from the united states brazil and argentina we show that under all time scales price volatility is an increasing linear function of inverse inventory which we term scarcity second we show how the addition of the factor scarcity in a state variable approach to the dynamics of the term structure of soybean forward prices improves the quality of the fit we document this property on a 25 year database of cbot futures contracts and show that the superior accuracy also affects long maturity futures contracts an important property for the valuation of long term origination contracts between producing countries and the agrifood industry

long term swings and seasonality in energy markets abstract this paper introduces a two factor continuous time model for commodity pricing under the assumption that prices revert to a stochastic mean level which shows smooth periodic fluctuations over long periods of time we represent the mean reversion price by a fourier series with a stochastic component we also consider a seasonal component in the price level an essential characteristic of many commodity prices which we represent again by a fourier series we obtain analytical pricing expressions for futures contracts using futures price data on natural gas we provide evidence on the presence of long term fluctuations and show how to estimate the long term component simultaneously with a seasonal component using the kalman filter we analyse the in sample and out of sample empirical performance of our pricing model with and without a seasonal component and compare it with schwartz and smith 2000 model our findings show the in sample and out of sample superiority of our model with seasonal fluctuations thereby providing a simple and powerful tool for portfolio management risk management and derivative pricing

an employment guarantee as risk insurance assessing the effects of the nregs on agricultural production decisions uninsured risk constrains households in their production decisions in many developing countries similarly to crop insurance employment guarantees can support farmers in managing agricultural production risks evidence from representative panel data of andhra pradesh india suggests that the national rural employment guarantee scheme nregs reduces households uncertainty about future income streams because it provides employment opportunities in rural areas independently of weather shocks and crop failure because the nregs makes an ex post labor supply response to agricultural shocks more efficient households with access to the nregs can shift their production towards riskier but also more profitable crops the observed shifts in agricultural production do considerably raise the profitability of agricultural production and hence the incomes of smallholder farmers the findings are not driven by changes in the labor or cost intensity of those crops which supports the idea that the causal mechanism underlying the observed changes is indeed an insurance effect

seasonal stochastic volatility implications for the pricing of commodity options many commodity markets contain a strong seasonal component not only at the price level but also in volatility in this paper the importance of seasonal behavior in the volatility for the pricing of commodity options is analyzed we propose a seasonally varying long run mean variance process that is capable of capturing empirically observed patterns semi closed form option valuation formulas are derived we then empirically study the impact of the proposed seasonal stochastic volatility model on the pricing accuracy of natural gas futures options traded at the new york mercantile exchange nymex and corn futures options traded at the chicago board of trade cbot our results demonstrate that allowing stochastic volatility to fluctuate seasonally significantly reduces pricing errors for these contracts

policy functions for capital accumulation paths abstract it has recently been shown that in neoclassical optimal growth models the set of policy function contains all twice differentiable functions the question has been raised as to whether this restriction to twice differentiable functions is essential in this paper we show that all c 1 functions with derivative satisfying a lipschitz condition can serve as policy functions and we also show by examples that differentiability is not a required property of a policy function

a complete characterization of optimal growth paths in an aggregated model with a non concave production function the convexity of technology has played a crucial role in economic analyses of optimal one sector growth problems for example two of the key results on the traditional model of ramsey 1928 that have relied on the convexity of the technology are that optimal intertemporal growth involves moving monotonically towards a unique steady state as in cass 1965 koopmans 1965 and that the value function is a concave differentiable function of the initial capital stock as in benveniste and scheinkman 1979

equilibrium models displaying endogenous fluctuations and chaos abstract this paper surveys current developments in dynamic general equilibrium theory concerned with conditions under which endogenous fluctuations are possible existing contributions are divided into two classes the larger one consists of models with a unique perfect foresight equilibrium while the second includes models where equilibrium is indeterminate and the set of equilibria involving endogenous fluctuations includes sunspots equilibria while the two classes of models involve oscillations of different natures and with different policy implications we show that both are consistent with optimizing behavior and competitive equilibrium

spot and derivative pricing in the eex power market using spot and futures price data from the german eex power market we test the adequacy of various one factor and two factor models for electricity spot prices the models are compared along two different dimensions 1 we assess their ability to explain the major data characteristics and 2 the forecasting accuracy for expected future spot prices is analyzed we find that the regime switching models clearly outperform its competitors in almost all respects the best results are obtained using a two regime model with a gaussian distribution in the spike regime furthermore for short and medium term periods our results underpin the frequently stated hypothesis that electricity futures quotes are consistently greater than the expected future spot a situation which is denoted as contango

computing the market price of volatility risk in the energy commodity markets abstract in this paper we demonstrate the need for a negative market price of volatility risk to recover the difference between black scholes black f scholes m 1973 the pricing of options and corporate liabilities journal of political economy 81 637 654 black black f 1976 studies of stock price volatility changes in proceedings of the 1976 meetings of the business and economics statistics section american statistical association pp 177 181 implied volatility and realized term volatility initially using quasi monte carlo simulation we demonstrate numerically that a negative market price of volatility risk is the key risk premium in explaining the disparity between risk neutral and statistical volatility in both equity and commodity energy markets this is robust to multiple specifications that also incorporate jumps next using futures and options data from natural gas heating oil and crude oil contracts over a 10 year period we estimate the volatility risk premium and demonstrate that the premium is negative and significant for all three commodities additionally there appear distinct seasonality patterns for natural gas and heating oil where winter withdrawal months have higher volatility risk premiums computing such a negative market price of volatility risk highlights the importance of volatility risk in understanding priced volatility in these financial markets

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

non linear dynamics in the infinite time horizon model there are two important reasons why economic growth theory became again a popular field during the last 15 years the first one is that recently developed growth theoretic models capture more aspects of economic growth than the models used in the fifties and sixties nowadays models of economic growth try to explain technological progress and innovations whereas the purpose of traditional models was mainly to describe the process of capital accumulation

valuation of commodity futures and options under stochastic convenience yields interest rates and jump diffusions in the spot this paper investigates the effects of stochastic convenience yields stochastic interest rates and jumps in the spot price on the pricing of commodity futures forwards and futures options numerical examples show that one factor prices differ materially from the stochastic convenience yield two factor prices when convenience yield is considerably above its long term average the extension to a three factor model with stochastic interest rates leads to a different futures price but the forward price is unchanged the extension ofthe three factor model to include jumps in the spot price process does not affect forward or futures prices but it can have an impact on options prices the model is applied to price the present value of future cash flows from a real asset

cross sectional versus time series estimation of term structure models empirical results for the dutch bond market abstract we compare time series and cross section estimates of the well known vasicek and cir term structure models for a dataset of daily bond prices and short term interest rates for the netherlands the main finding is the great similarity between the two models with respect to the cross sectional term structure parameter estimates and implied bond option values from a time series perspective we find that for some maturities the data reject the constant volatility vasicek model and indicate the presence of the cir volatility effects

competitive equilibrium cycles recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez faire economies in the context of standard overlapping generations economies conditions for the existence of equilibrium cycles have been given by grandmont 1983 and by benhabib and day 1982 models of the economy with extrinsic uncertainty or sunspots that have been developed by shell 1977 and by cass and shell 1983 see also balasko 1983 can also lead to equilibrium cycles

income guarantees and borrowing in risky environments evidence from india s rural employment guarantee scheme this paper investigates the effects of an income guarantee on borrowing in a risky setting with marked seasonality a three season infinite horizon model is developed in which the aims of smoothing consumption and maintaining creditworthiness are somewhat opposed and the seasonal timing of transfers matters if borrowing does not affect production then larger transfers concentrated in the lean season may well lead to a contraction of the total amount borrowed over the whole annual cycle if borrowing also finances working capital then larger transfers make riskier positions attractive and investment in working capital and total borrowing may both increase these insights are tested in the context of india s national rural employment guarantee scheme as implemented in upland odisha the potential endogeneity of participation is addressed by using the female reservation for local elections as an instrument each day s work reduces the estimated level of borrowing in the lean season by about the regulated wage in contrast the estimated effect on borrowing in the cultivation season by households owning at least the median holding is to increase it by about one and a half times the wage but there is no significant effect for households owning less

unspanned stochastic volatility and the pricing of commodity derivatives commodity derivatives are becoming an increasingly important part of the global derivatives market here we develop a tractable stochastic volatility model for pricing commodity derivatives the model features unspanned stochastic volatility quasi analytical prices of options on futures contracts and dynamics of the futures curve in terms of a low dimensional affine state vector we estimate the model on nymex crude oil derivatives using an extensive panel data set of 45 517 futures prices and 233 104 option prices spanning 4082 business days we find strong evidence for two predominantly unspanned volatility factors jel g13

seasonality and the valuation of commodity options price movements in many commodity markets exhibit significant seasonal patterns however given an observed futures price a deterministic seasonal component at the price level is not relevant for the pricing of commodity options in contrast this is not true for the seasonal pattern observed in the volatility of the commodity price analyzing an extensive sample of soybean corn heating oil and natural gas options we find that seasonality in volatility is an important aspect to consider when valuing these contracts the inclusion of an appropriate seasonality adjustment significantly reduces pricing errors in these markets and yields more improvement in valuation accuracy than increasing the number of stochastic factors

volatility and price jumps in agricultural futures prices evidence from wheat options revised version published in american journal of agricultural economics vol 86 number 4 november 2004 1018 1031

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

filtering and forecasting commodity futures prices under an hmm framework abstract we propose a model for the evolution of arbitrage free futures prices under a regime switching framework the estimation of model parameters is carried out using the hidden markov filtering algorithms comprehensive numerical experiments on real financial market data are provided to illustrate the effectiveness of our algorithm in particular the model is calibrated with data from heating oil futures and its forecasting performance as well as statistical validity is investigated the proposed model is parsimonious self calibrating and can be very useful in predicting futures prices

the dynamics of convenience and the brazilian soybean boom u s and brazilian soybeans are harvested on an alternating semiannual cycle that generates predictable dynamic behavior in the soybean futures market because corn and soybeans are storage substitutes their physical storage costs move together and can be isolated separately from crop specific marginal convenience yields along the futures price profile the kaldor working convenience yield hypothesis is tested for the international soybean market and storage risk is measured

a two factor cointegrated commodity price model with an application to spread option pricing in this paper we propose an easy to use yet comprehensive model for a system of cointegrated commodity prices while retaining the exponential affine structure of previous approaches our model allows for an arbitrary number of cointegration relationships we show that the cointegration component allows capturing well known features of commodity prices i e upward sloping contango and downward sloping backwardation term structures smaller volatilities for longer maturities and an upward sloping correlation term structure the model is calibrated to futures price data of ten commodities the results provide compelling evidence of cointegration in the data implications for the prices of futures and options written on common commodity spreads e g spark spread and crack spread are thoroughly investigated