Commodity Model Research Articles

Bundle-Pricing Decision Model for Multiple Products

Bundling is an efficient method to achieve business objectives in many industries. However decisions of bundle selection and pricing are complicated when multiple products are involved. In this paper, we investigate a bundle-pricing decision model for multiple products. With the objective to maximize the retailer’s profit, an integrated bundle-pricing model for multiple commodities is formulated as a Non-Linear Mixed Integer Program based on the framework of Stackelberg game. By adding auxiliary decision variables, this model is converted into a Mixed Integer Linear Program and solved by Cplex. Numerical experiments and sensitive analysis are conducted to provide managerial insights for bundling multiple products. It indicates that low consumption level consumers prefer bundles composed of more commodities with lower prices. The products with higher cost level should be bundled with smaller bundle size and higher prices.

Modeling Fluctuations in the Global Demand for Commodities

It is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply. One of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity. There have been numerous proposals for quantifying global real economic activity. We discuss which criteria a measure of global real activity must satisfy to be useful for modeling industrial commodity prices, we examine which of the many alternative measures in the literature are most suitable for applied work, and we explain why some popular measures are inappropriate for modeling commodity prices. Given these insights, we reexamine in detail the question of whether global real economic activity has declined since 2011 and by how much. Drawing on a range of new evidence, we show that the global commodity price boom of the 2000s appears to have been largely transitory. Our analysis has important implications for the design of structural models of commodity markets, for the analysis of the transmission of commodity price shocks to commodity-importing and exporting economies, and for commodity price forecasting.

Risk in General Equilibrium: Temporality and Performativity in the Ontology of Finance

Abstract This paper reconstructs the ontology of finance as it is presented in Kenneth Arrow’s general equilibrium model of contingent commodities. The fundamental notion of modern finance, ‘Arrow securities’ (paying one monetary unit contingent upon a certain future event and nothing otherwise) is considered an elementary Luhmannian code of the economic. The performative, self-implementing tendencies in general equilibrium analysis are reinterpreted in view of the joint risk design as conceived by Dirk Baecker. Creating new (markets for) risks to control the future can be, on the one hand, traced back/justified with reference to Arrow’s world of contingent commodities and, on the other, rationalized as a way of adjusting the economic system and moving reality closer to its theoretical portrayal. I also associate the creation of the new ‘risk structures’ with the new overarching temporality inviting us to tame uncertainty and govern the future.

Модель "відстаючого зростання": економічні фактори та наслідки для України

It is concluded that Ukraine's economy is dominated by the commodity model, within which it specializes in the production of low value added goods. Because of this Ukraine's economy is highly dependent on the fluctuations of the world prices for this country's export commodities. The author proves that, over the last 20 years, all the three economic, financial and FX crises observed in Ukraine (1998-1999, 2008-2009, and 2014-2015) took place against the background of the decline of the world prices for Ukrainian export items. And, vice versa, the revivals of the global conjuncture for raw materials were associated in Ukraine with economic growth, balanced budget and strong foreign exchange market position. In this article, the world commodity market conjuncture is analyzed through the prices for steel, wheat, sunflower oil and nitrogen fertilizers exported by Ukraine. It is stated that the causes of economic, financial and FX crises can vary significantly depending on the type of economy: commodity or industrial one, small or big one, and having or not a free access to international financial markets. It is concluded that, in small commodity based economies, financial, monetary and FX misbalances are not always the initial point of a crisis. In a number of cases they only play a secondary role in the crisis origination. It is stressed that the phases of economic cycle in Ukraine as well as the stance of its finance, budget and exchange rate of the Hryvnia are to a great extent determined by the commodity nature of national production. Meanwhile the high volatility of the latter could be explained by a long-term technological decline. Ukraine is featuring a lagging growth model according to which national GDP rates are lower than those in the most countries with emerging markets. As a result, Ukraine has been helplessly slipping down towards the commodity based periphery of the global economy although, in formal terms, its GDP dynamics may remain positive. It is underscored that a systematic eradication of the above mentioned drawbacks would involve a technological revival, and the development of the manufacturing sector with its shifting to the production of high value added goods.

Multiple commodities in statistical microeconomics: Model and market

Abstract A statistical generalization of microeconomics has been made in Baaquie (2013). In Baaquie et al. (2015), the market behavior of single commodities was analyzed and it was shown that market data provides strong support for the statistical microeconomic description of commodity prices. The case of multiple commodities is studied and a parsimonious generalization of the single commodity model is made for the multiple commodities case. Market data shows that the generalization can accurately model the simultaneous correlation functions of up to four commodities. To accurately model five or more commodities, further terms have to be included in the model. This study shows that the statistical microeconomics approach is a comprehensive and complete formulation of microeconomics, and which is independent to the mainstream formulation of microeconomics.

Customer behaviour model of brown sugar commodity

There is a gap between consumption and production of sugar in many countries and especially in Indonesia. Brown sugar business is important to be developed as a healthy alternative sweetener. Business development is supposed to be based on consumer behaviour. We found some behaviour of brown sugar customers in purchasing, such as ensuring density, taste, neatness of packaging and later on the price of brown sugar to be bought. There are several factors that influence customer behaviour in purchasing of brown sugar. The fourth independent variables on α 5% (age of respondent, income, texture, and dummy for purchasing reason), and the third independent variables on α 25% (service of seller, market cleaning, and dummy for vocation) affected the customer behaviour in purchasing of brown sugar significantly. The implication of this research is to obtain information about the factors that must be considered in formulating a marketing strategy based on customer behaviour. It is very useful to the existence of brown sugar business, and to increase the brown sugar business scale to meet the needs of national and international markets for alternative sources of healthy sweetener.

Customer behaviour model of brown sugar commodity

There is a gap between consumption and production of sugar in many countries and especially in Indonesia. Brown sugar business is important to be developed as a healthy alternative sweetener. Business development is supposed to be based on consumer behaviour. We found some behaviour of brown sugar customers in purchasing, such as ensuring density, taste, neatness of packaging and later on the price of brown sugar to be bought. There are several factors that influence customer behaviour in purchasing of brown sugar. The fourth independent variables on α 5% (age of respondent, income, texture, and dummy for purchasing reason), and the third independent variables on α 25% (service of seller, market cleaning, and dummy for vocation) affected the customer behaviour in purchasing of brown sugar significantly. The implication of this research is to obtain information about the factors that must be considered in formulating a marketing strategy based on customer behaviour. It is very useful to the existence of brown sugar business, and to increase the brown sugar business scale to meet the needs of national and international markets for alternative sources of healthy sweetener.

Costs of integrating demand-based reproductive health commodity model into the Government and NGO service delivery systems in Bangladesh: a supply side perspective.

To estimate additional total cost and average cost of integrating the demand-based reproductive health commodity model into the existing Government and NGO facilities in Bangladesh. Activity based cost analysis was conducted during 2006–2008 in two low performing rural sub-districts (Nabigong and Raipur sub-district) and one urban slum area in Dhaka city, Bangladesh. Activity-based cost data were collected using ingredient approach, which comprised of listing all types of inputs by activity, quantities and prices for each input. Total cost was presented according to capital and recurrent items. The supply side perspective was considered for entire analysis. The total cost of integrating demand-based reproductive health commodity (DBRHC) model into the Government and NGO service delivery system was estimated to BDT 18,667,634 (US$274,524). The proportion of capital cost was 59 % and the recurrent cost was 41 % of the total cost. The average cost per beneficiaries was BDT 230 (US$3.38) only for introducing this model into the existing health system. The built-in interventions of DBRHC model were doable at low-cost at the selected Government and NGO settings at the grass-root level. The model has potential of further cost containment during scaling up—if the intervention costs are adjusted with the existing functionaries of the Government and NGOs.

Optimizing yield distribution under biological and economic constraints: Florida strawberries as a model for perishable commodities

In this interdisciplinary study we propose a modeling framework for deriving the optimal yield curve for strawberry production in Florida that maximizes the profit of growers given competition from California and Mexico and sensitive price responses to market supply. The model integrates both biological and economic constraints. The biological constraints for Florida production are formulated assuming that potential improvement of yield has genetic and horticultural limits, while economic constraints account for price changes in response to supply. The optimal yield curves derived show clear differences from the historical yield patterns observed in Florida, indicating that yields during the first 6 to 8weeks of the season should be maximized to realistic limits and that total season yields should be limited to 27,465 and 32,415kg/ha under two different yield distribution scenarios assuming current acreage and market demand. Obtaining optimal yield distributions under the two scenarios could generate $7685 and $14,293 per ha more profit, whereas the historical yield pattern will result in significant losses under assumed acreage, raising concerns about the sustainability of the industry. The results of this study will be used to guide efforts in breeding and improvement of cultural practices and will assist growers in making informed decisions on cultivars and technologies/practices to adopt to maximize profit. The methodology proposed can be adapted to other regions or countries and used for other perishable crops with extended production seasons.

Affine‐Structure Models and the Pricing of Energy Commodity Derivatives

AbstractWe consider a seasonal mean‐reverting model for energy commodity prices with jumps and Heston‐type stochastic volatility, and three nested models for comparison. By exploiting the affine form of the log‐spot models, we develop a general valuation framework for futures and discrete arithmetic Asian options. We investigate five major petroleum commodities from Europe (Brent crude oil, gasoil) and US (light sweet crude oil, gasoline, heating oil) and analyse the effects of the competing fitted spot models in futures pricing, Asian options pricing and hedging. We find evidence that price jumps and stochastic volatility are important features of the petroleum price dynamics.

Empirical commodity storage model: the challenge of matching data and theory

The ability of the standard commodity storage model to replicate annual price serial correlation is a controversial issue. Calendar year averages of prices induce spurious smoothing of price spikes, a fact that has been surprisingly overlooked in several empirical estimations of the annual commodity storage model for agricultural commodities. We present the application of a maximum likelihood estimator of the storage model for maize prices, correcting for the spurious smoothing. We find, for this data set, serious differences in magnitudes of interest.

Not All that Glitters is Gold: Gold Boom, Child Labor and Schooling in Colombia

This paper estimates the impact of the boom in international gold prices on child labor and schooling in Colombia. I first set up a simple agricultural household model of child labor and commodity prices hocks which guides the empirical analysis. Then, I use individual level information from the censuses of 1985, 1993 (when prices where stable) and 2005 (when prices surged) merged with regional data on gold production capabilities. I define Gold Boom as an interaction between regional gold production capabilities and the international price of gold. I find that child labor is increasing (0.3 standard deviations) and school attendance is decreasing (0.9 standard deviations) in the measure of gold boom. Accordingly, the gold boom decreases school attainment (0.2 standard deviations). This is consistent with the model when initial child labor is low and substitution effects dominate income effects. Finally, I find that the years of education of the head of the head of the household but not her ownership of assets mitigate the collateral effects of the gold boom.

A drift‐free simulation method for pricing commodity derivatives

Having in view the pricing of commodity derivatives in Libor Market Model (LMM) setting, we first analyze the set of basic rates we need to formulate the model by using the spanning tree concept taken from graph theory. Next, we present an efficient procedure for Monte Carlo simulation of the dynamics of the rates associated to LMM, avoiding the presence of the rates dependent drifts (drift‐free simulation) and the presence of negative deflated bond prices and negative forward rates. The method is based upon a new parameterization of the martingales introduced by Glasserman and Zhao and it is extended to a Cross‐Market Model for commodities. Finally, a particular example of commodity derivative (spread option) pricing problem is considered. Copyright © 2014 John Wiley & Sons, Ltd.

MULTIVARIATE SUBORDINATION OF MARKOV PROCESSES WITH FINANCIAL APPLICATIONS

This paper develops the procedure of multivariate subordination for a collection of independent Markov processes with killing. Starting from d independent Markov processes with killing and an independent d‐dimensional time change , we construct a new process by time, changing each of the Markov processes with a coordinate . When is a d‐dimensional Lévy subordinator, the time changed process is a time‐homogeneous Markov process with state‐dependent jumps and killing in the product of the state spaces of . The dependence among jumps of its components is governed by the d‐dimensional Lévy measure of the subordinator. When is a d‐dimensional additive subordinator, Y is a time‐inhomogeneous Markov process. When with forming a multivariate Markov process, is a Markov process, where each plays a role of stochastic volatility of . This construction provides a rich modeling architecture for building multivariate models in finance with time‐ and state‐dependent jumps, stochastic volatility, and killing (default). The semigroup theory provides powerful analytical and computational tools for securities pricing in this framework. To illustrate, the paper considers applications to multiname unified credit‐equity models and correlated commodity models.

Constructing Markov Processes with Dependent Jumps by Multivariate Subordination: Applications to Multi-Name Credit-Equity Modeling

This paper develops the procedure of multivariate subordination for a collection of independent Markov processes with killing. Starting from d independent Markov processes Xi with killing and an independent d-dimensional time change T, we construct a new process by time changing each of the Markov processes Xi with a coordinate Ti. When T is a d-dimensional Levy subordinator, the time changed process Yi:=Xi(Ti(t)) is a time-homogeneous Markov process with state-dependent jumps and killing in the product of the state spaces of Xi. The dependence among jumps of its components is governed by the d-dimensional Levy measure of the subordinator. When T is a d-dimensional additive subordinator, Y is a time-inhomogeneous Markov process. When Ti= ∫0tVsi ds with Vi forming a multi-variate Markov process, (Yi,Vi) is a Markov process, where each Vi plays a role of stochastic volatility of Yi. This construction provides a rich modeling architecture for building multivariate models in finance with time-dependent and state-dependent jumps, stochastic volatility, and killing (default). The semigroup theory provides powerful analytical and computational tools for securities pricing in this framework. To illustrate, the paper considers applications to multi-name unified credit-equity models and correlated commodity models.

Application Research of Virtual Sludge Technology FreeForm in Character Design

The paper introduces the way of solid modeling and wire frame modeling, described modeling ways from drawing the general outline of the form, to using the general model to make out the general modeling of form, to making the whole effect of the animation by combining with concrete examples which are pf rapid and convenient application value in promoting design speed, enriching expression effect (surface modeling), optimizing design process. It is beneficial to play the design wisdom, give consideration to both economic and social benefits. Its modeling is easy to meet consumer demand for fresh and exaggerated things, and helps to clear the market demand, good commodity modeling and its industrialization prospect.

Future Trend of Mineral Industries Development in Indonesia

The aim of this study is to figure out the vision of effort of utilizing the remainder of the available mineral asset in the country, where Indonesia is necessarily seeking new opportunity toward developing mineral industry (hydro-carbon, metal, and non-metal) such as fine chemical industry, alloy (stainless/tool steel), fibre, ceramic block, super/semiconductor in the purpose of supporting super downstream industry that could produce massive mineral products containing high added value. Moreover, those downstream industries require high quantity and quality of minerals as raw material. The methodology applied in this study is based on a descriptive analytical method combined with dynamic commodity models to find the problems encountered in the effort to gain highest added value in mineral utilization.

PRICING COMMODITY FUTURES CONTRACTS WITH A REGIME-SWITCHING MODEL

In this paper we present one factor model of commodity prices with a single jump regime-switching process. And we derive an analytic formula for pricing futures contracts when the parameters of commoditiy process have governed by a Markov regime-switching process.

The Financialization of Storable Commodities

I construct a dynamic equilibrium model of storable commodities populated by producers, dealers, and households. When financial innovation allows households to trade in futures markets, they choose a long position that leads to lower equilibrium excess returns on futures, a more frequently upward-sloping futures curve, and higher volatility in futures and spot markets. The effect on spot price levels is modest, and extremely high spot prices only occur in conjunction with low inventories and poor productivity. Therefore such financialization'' of commodities may explain several recently observed changes in spot and futures market dynamics, but it cannot directly account for a large increase in spot prices.

Cross-Hedging of Inflation Derivatives on Commodities: The Informational Content of Futures Markets

According to the macro-econometric literature, the impact of exogenous oil price shocks on Inflation have greatly increased in the last two decades throughout OECD countries while the persistence of those shocks on long-term inflation, namely core inflation, has dramatically decreased. In the meantime, the market for inflation derivatives soared, spurred by a revival of the primary inflation-linked bond market. As the contribution of core inflation to the total headline inflation volatility bottomed, most of the volatility of headline inflation should thus be explained by changes in the spread between headline and core inflation indicators: a factor closely linked to commodity markets. This economic analysis should have important financial arbitrage implications in the futures market: are exogenous shocks on oil futures markets incorporated into zero coupon inflation indexed swap prices? To investigate this issue, we propose on the one hand a four-factor model for both inflation and nominal rates, and on the other hand a two-factor model for commodities. We proceed to an empirical estimation of the model using prices of oil futures contracts and inflation breakeven rates from which we can in particular extract a synthetic core inflation forward curve.