A-GARCH Commodities

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cedbourge
Posts: 6
Joined: Fri Oct 05, 2012 11:54 am

A-GARCH Commodities

Postby cedbourge » Tue Jul 23, 2013 3:06 pm

Hi Carole,

You mentioned A-GARCH to be used for commodities. I would like to understand what commodities return time series shall we use:
Generally if we use month ahead returns we will capture the month ahead instanatenous volatility....to capture the terminal volatility of say the 24th month ahead contract we shall then calculate 24 instantaneous volatility estimates and sum them up (weighted sum of monthly piece wise instanaeous variance) to get to our terminal vol estimates....so that means we would need to calibrate 24 A-GARCH to estimate the 24 month ahead contract terminal volatility.
Is this the way you envisage commodity A GARCH or were yuo just refering to the estimation of the instantaneous vol only ?

Also, say for gas, the estimation of each instantaneous vol will be bias because of seasonality:
we have our 22 days return of the sept contratc ...then sept roll into august...on that day we then have a jump in our return time series because we only look at month ahead fwd price..then our 22 days september return extend to another 22 days but with august return...august volatility is not the same as in september due to plant maintenace, weather, ect...when we continue like this over 1Y we end up having a month ahead return time series which is not homogeneous...because of seasonality.

Do you know about technics to build homogenous return time series for commodities given seasonality ?

Thks

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