Short-Term Variations and Long-Term Dynamics in Commodity Prices

  title={Short-Term Variations and Long-Term Dynamics in Commodity Prices},
  author={Eduardo S. Schwartz and James E. Smith},
  journal={Management Science},
In this article, we develop a two-factor model of commodity prices that allows meanreversion in short-term prices and uncertainty in the equilibrium level to which prices revert. Although these two factors are not directly observable, they may be estimated from spot and futures prices. Intuitively, movements in prices for long-maturity futures contracts provide information about the equilibrium price level, and differences between the prices for the short-and long-term contracts provide… 

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