Cuadernos del CIPE No. 40. The Ornstein - Uhlenbeck process. An introduction for commodity modelling with smeextensions.
An example for the London Cocoa Net Spot Convenience Yield
One of the canonical models for commodity international financial markets is known as the Gibson and Schwartz (1990) model. In this model, a second variable different from the Standard Spot Price of the commodity, known as the Net Spot Convenience Yield, is modelled through an Ornstein-Uhlenbeck process. Based on this, it is fundamental for anyone who aims to work in the commodity modelling field to know the particularities of this stochastic process: (I) its general history; (II) the intuition and interpretation behind it; (III) its general solution; (IV) so me of its particular characteristics; (V) the statistics inspired by it that help to test the presence of a mean-reverting pattern or not of a time-series and (VI) the calibration methods. Finally, so me of these features will be applied to the concrete case of the London Cocoa Net Spot Convenience Yield.