An empirical analysis of commodity pricing

Commodity pricing models generally explain the link between commodity prices and stock levels in terms of a stock-out constraint or a convenience yield. Analysis of this link is provided using monthly London Metals Exchange copper, lead, and zinc prices obtained for the period November 1964 to December 2003. A Markov model, fitted to these data, supports the existence of two distinct pricing regimes while the impact of convenience yields is also identified.