Eduardo Schwartz
An expert in various dimensions of asset and securities pricing, Dr. Schwartz’s recent research has focused on pricing Internet companies, interest rate models, asset allocation issues, evaluating natural resource investments, the stochastic behavior of commodity prices and valuing patent-protected R&D projects. His collected works include more than 80 articles in finance and economic journals, two monographs, and a large number of monograph chapters, conference proceedings, and special reports.
Dr. Schwartz is among the first researchers to develop the real options method of pricing investments under uncertainty. He is co-editor, with Lenos Trigeorgis of the University of Cypress, on the book, Real Options and Investment Under Uncertainty (MIT, 2001), a compilation of recent papers and classic research in the field. His most recent research applies real options to pricing values in the pharmaceutical industry, specifically focusing on patents and R&D projects.
He is the winner of a number of awards for both teaching excellence and for the quality of his published work. He has served as associate editor for more than a dozen journals, including Journal of Finance, Journal of Financial Economics and Journal of Financial and Quantitative Analysis. He is a former president of the Western Finance Association and the American Finance Association. He is a fellow of the American Finance Association and the Financial Management Association International. He is also a research associate of the National Bureau of Economic Research.
Dr. Schwartz was awarded a Doctor Honoris Causa by the University of Alicante in Spain. He also received the 2000 Graham and Dodd Award for his paper, “Rational Pricing of Internet Companies,” published in the Financial Analysts Journal. He has also been a consultant to governmental agencies, banks, investment banks and industrial corporations.
Articles by this Author
The Stochastic Behavior of commodity prices: Implications for valuation and hedging
- By Eduardo Schwartz
- Published 10/22/2007
- Valuation
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Published in: Journal of Finance
Publication year: 1997
In this article we compare three models of the stochastic behavior of commodity prices that take into account mean reversion, in terms of their ability to price existing futures contracts, and their implication with respect to the valuation of other financial and real assets. The first model is a simple one-factor model in which the logarithm of the spot price of the commodity is assumed to follow a mean reverting process. The second model takes into account a second stochastic factor, the convenience yield of the commodity, which is assumed to follow a mean reverting process. Finally, the third model also includes stochastic interest rates. The Kalman filter methodology is used to estimate the parameters of the three models for two commercial commodities, copper and oil, and one precious metal, gold. The analysis reveals strong mean reversion in the commercial commodity prices. Using the estimated parameters, we analyze the implications of the models for the term structure of futures prices and volatilities beyond the observed contracts, and for hedging contracts for future delivery. Finally, we analyze the implications of the models for capital budgeting decisions.