Author(s):	Constantino Hevia, Ivan Petrella, Martin Sola
Publication Date:	March 2016
Date Revised:	March 2018
Keyword(s):	Commodity Futures, Nelson and Siegel, Risk premium, Seasonality, Theory of storage
JEL(s):	C22, G12, G13
Programme Areas:	Financial Economics, Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11169

We develop and estimate a multifactor affine model of commodity futures that allows for stochastic seasonality. We document the existence of stochastic seasonal fluctuations in commodity futures and that properly accounting for the cost-of-carry curve requires at least three factors. We estimate the model using data on heating oil futures and analyze the contribution of the factors to risk premia. Correctly specifying seasonality as stochastic is important to avoid erroneously assigning those fluctuations to other risk factors. We also estimate a nonlinear version of the model that imposes the zero lower bound on interest rates and find similar results.