Pricing China's Crude Oil Futures

Download or read book Pricing China's Crude Oil Futures written by Ming Dong and published by LAP Lambert Academic Publishing. This book was released on 2011-02 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: The world oil prices have raised and fluctuated a lot during the past ten years. In order to hedge the risks, developing Chinese petroleum futures market is important. However, lacking pricing system is a main issue. In this paper, I use the two-factor model and a seemingly unrelated regression method from Gibson & Schwartz (1990) to price China s one-month crude oil future contract. First, I estimate the future prices by assuming that China has the same convenience yield as the U.S. market. Second, I study the possibilities of real convenience yield in China based on macroeconomic analysis. Third, arbitrage theory provides the reasonable future prices. In the end, statistical tests prove that the calculated China s crude oil future prices have the price discovery function for the Daqing spot prices and the ability of hedging international oil shocks. This work should be useful to professioinals in asset pricing and commodity derivatives fields, or anyone else who may be considering commodity market as a interest.