This paper focuses on a nonlinear stochastic model for financial simulation and forecasting based on assumptions of multivariate stochastic correlation, with an application to the European market. We present in particular the key elements of a structured hierarchical econometric model that can be used to forecast financial and commodity markets relying on statistical and simulation methods. The...

Recent empirical studies find evidence of commodity prices moving more in sync with financial markets throughout the 2000s, and in contrast to previously. This increased correlation is called the financialization of commodity markets and is conjectured to be due to the influx of external (portfolio optimizing) traders through commodity index funds, for instance. We build a feedback model to try...