Commodity storage with durable shocks: a simple Markovian model

DOI10.1007/S11579-013-0108-7MaRDI QIDQ2452155zbMATH OpenOpenAlexFDO

Authors Anna Cretì, Bertrand Villeneuve

Publication date 30 May 2014

Published in Mathematics and Financial Economics (Search for Journal in Brave)

Full work available at URL https://basepub.dauphine.fr/handle/123456789/5384

zbMATH Keywords

commoditiespiecewise deterministic Markov modelprice stabilizationstrategic stockssupply risk

Mathematics Subject Classification ID

Inventory, storage, reservoirs (90B05) Microeconomic theory (price theory and economic markets) (91B24)

Review text

This article deals with a model of commodity storage in an economy which randomly alternates between episodes of abundance and scarcity. The article begins with an overview of the existing literature and an outline of the proposed method, whose feature is that does not rely on fixed point methods but on the solution of a system of ordinary differential equations. The second section presents the model details and defines its Markov equilibrium. This is followed by a section presenting the solution of the model and the uniqueness of the equilibrium, as well as an algorithm for its calculation. The last sections of the article present the interpretation of the model and solution in terms of the behavior of the economy, the distribution of stock, the potential applications of the proposed method and suggestions for further research. The article concludes with a detailed appendix with the mathematical proofs of the described properties of the model.

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Cites work

• Characterization of the marginal distributions of Markov processes used in dynamic reliability
• Economics of Depletable Resources: Market Forces and Intertemporal Bias
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Cited in

(10)

• Price relations on futures markets for storable commodities
• Temporary equilibrium with storable commodities
• scientific article; zbMATH DE number 5824061 (Why is no real title available?)
• Commodity Price Stabilization in Imperfect or Cartelized Markets
• Market News in Commodity Price Theory: Application to the Ethiopian Grain Market
• Modeling and estimating commodity prices: copper prices
• On the Pricing of Storable Commodities
• A stochastic optimal stopping model for storable commodity prices
• The empirical relevance of the competitive storage model
• Equilibrium storage with multiple commodities

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