Commodity Pricing and Management

The present document aims at synthetizing some of the research that my co-authors and I have been conducting over the past 20 years. The research questions center on the pricing and management of commodity futures contracts. In a series of articles published in the Journal of Banking and Finance, we highlighted the role of signals such as past performance, hedging pressure, skewness and fears in pricing commodity futures contracts and in designing profitable commodity-based investment strategies. We also extended this research by showing that integrating some of these signals into a unique portfolio (as opposed to holding them as stand-alone) can improve performance further.In an extension of this line of research to equity markets, we analyzed whether the risk premia that have been shown to price commodity futures contracts could be used to explain the pricing of equity portfolios in the context of the Intertemporal Capital Asset Pricing Model of Merton (1973).The conclusion is that commodity risk premia act as state variables in the sense of the ICAPM inasmuch as they help predict shifts in the investment opportunity set of agents in a way that is consistent with rational pricing.The chapter ends with a summary of projects that I am currently working on. These research projects make use of term structure models and neural networks to design novel commodity strategies and thus they are perfectly consistent with the general theme of my previous work