Testing Multi-Factor Models of the Term Structure of Chinese Gold Futures Market

This paper examines the multi-factor models of the term structure of Chinese gold futures, which becomes one of the major futures market in China. The spot price is the sole factor of stochastic process with mean reversion in one factor model and two factor model contains the mean reverting convenience yield process with a spot price. In three factor model, the instantaneous interest rate is considered as an additional factor. We apply Kalman filter and maximum likelihood estimation (MLE) to estimate the parameters of multi-factor models using the daily data from 2008 to 2013. As a result, the three factor model performs best to capture the feature of the term structure of gold futures although Chinese gold futures market seems hardly to have a convenience yield from the estimated results of two factor model, Since the study on estimating the term structure of Chinese gold futures is rare, this paper provides further research direction for better understanding about Chinese gold futures market.