The Research Of Commodity Futures Pricing In China Jump-diffusion Model

The basic capabilities of futures markets are price discovery and hedging. The market participants can use it avoid price risks effectively. Meanwhile, the study of futures price changes is good for them to master market direction. Commodity futures market in China not only has the general nature of the futures market, but also has its own unique character. The main purpose of this paper is studying the commodity futures pricing model in China, and verifying the pricing ability of the model.First of all, this paper shows related theories and models about commodity futures pricing at home and abroad. These are the foundation for proposing the commodity futures pricing model in China.Secondly, we analysis two characteristics of commodity futures price changes in China. One is it is influenced by international commodity futures prices for a long time, the other is it has obvious jump characteristic. On this basis, the jump-diffusion model which applied to China’s commodity futures price is put forward. This model decomposes the commodity prices in China into an unobscrvable variable and an observable variable’s impact. The former is short-term deviations from price, the later is international commodity futures price. The jump feature is included in the short-term deviations from price.Finally, the empirical evidence is provided on cotton futures、copper futures and soybean meal futures using MCMC method. Three contracts (from January2010to January2013) are chosen for each of them. We estimate the parameters and analyze the jump component on the daily closing price data by R and WinBUGS software. Results show that the change of international commodity prices has a significant impact on China’s commodity futures price changes. Jump composition is an important component of it. Pricing model proposed in this paper can reflect the jump intensity relatively accurately, no matter how less is. Besides, a comparison between the proposed jump-diffusion model and the previous model is displayed in this article. It is found that the model with impact of international commodity futures price is more suitable to describe the futures price changes in China, and the fitting effects are more stable.In a word, the impact of international commodity futures price and the jump feature are must be considered on the study of commodity futures pricing in China, which are not only to deal with the commodity futures pricing better, but also to lay a good foundation for hedging strategy.