New pricing model predicts commodity futures prices based on weather stress
The article explores how weather stress and storage affect commodity futures and options prices. The researchers developed a new pricing model based on economic theory and plant physiology, finding a link between ending stocks and implied skewness. They also studied milk futures contracts, showing that volatility decreases as contracts near maturity. Additionally, they found that information flows from futures to cash prices, while volatility spillovers go both ways. The study suggests that speculation does not significantly impact futures prices.