Nina Lange: The correlation structure of exchange rates and commodity prices
Nina Lange (Copenhagen Buisiness School) holder et seminar med tittelen: The correlation structure of exchange rates and commodity prices
An investor in commodity markets is often faced with both price risk and currency risk, as the commodity is often traded in a diﬀerent currency than the investor’s own. Often, the news report that the commodity prices and the USD/EUR rate move in opposite directions, indicating that the currency risk and price risk oﬀsets each other for a Euro denominated investor. In this paper, I investigate if this is in fact the case and to which extent the correlation connects to the volatility of the commodity price and exchange rates. The paper introduces a model which allows for stochastic correlation of both signs and models the futures price curves and option prices in a model. The model is estimated using data on WTI crude oil and EURUSD futures contracts traded at the Chicago Merchantile Exchange from 1998 to 2013.