Essays on modeling derivative claims. Essay titles: Essay 1. Modeling energy commodity futures: Is seasonality part of it? Essay 2. Modeling corporate liabilities under regime-switching asset volatility

Essay 1. The paper analyzes the price dynamics of two commodity futures prices—crude oil and natural gas. Some of the latest models of commodity prices are tested here—the two-factor model of Schwartz-Smith (2000), which nests other important models developed earlier. The two-factor model includes a mean-reverting short-term deviation and uncertain equilibrium level to which prices gravitate. The Schwartz-Smith two-factor model is the base case model in the paper.; The model parameters of the Schwartz-Smith two-factor model are estimated from traded futures on natural gas and crude oil, using the fixed maturity format I create for futures prices. Analysis of the variance structure of natural gas prices suggests seasonality. The model is estimated on seasonally adjusted data. Model-based seasonality approaches are developed—seasonal dummies and a three-factor model with a stochastic seasonality component of log spot prices. The prediction ability of the various parameterized and non-parameterized versions of models with seasonality is compared in-sample and out-of-sample. The volatility functions model, based on principal components extraction from daily data, with seasonality in short-term volatility, seems to have the best forecasting ability, followed by the two-factor model on Kendall-type deseasonalized data and the seasonal dummies specification.; Essay 2. This paper contributes to the extant structural model literature by introducing a time-varying risk-shifting barrier, to model asset substitution, and studying its theoretical and empirical implications on corporate credit spreads. Risk-shifting is expected to affect the default component of corporate spreads, because by switching to a higher level of asset volatility, managers precipitate the onset of distress and endogenously alter the probability of default. I test cross-sectionally whether the risk of volatility regime switching, measured by agency cost, is priced in market corporate spreads. The test indicates that agency cost is an important risk factor for corporate bond pricing, controlling for term structure and credit risk.; The theoretical predictions of the two-regime model postulate that the credit component of corporate spreads should increase, relative to single-regime structural models' spreads, because asset substitution raises both expected default frequency and loss given default. The model is estimated using equity and balance sheet data and its theoretical predictions are borne by the empirical results.; The spread and percentage errors compare very favorably to results of extant structural models, especially the model of Ericsson and Reneby (2002) which is the closest to our model. The tighter credit spread errors of the regime-switch model give hope that structural models that explicitly incorporate asset substitution might provide spreads closer to observed spreads, without requiring unrealistic parameters of the firm value process.