Valuing long-term commodity assets

I present a one-factor model for the stochastic behavior of commodity prices that retains most of the characteristics of a more complex two-factor stochastic convenience yield model in terms of its ability to price the term structures of futures prices and volatilities based on the pricing and volatility results of the two-factor model. When applied to the valuation of long-term commodity projects, it gives practically the same results as the more complex model. The inputs to the model are the current prices of all existing futures contracts (and their maturities) and the estimated parameters of the two-factor model. It requires the numerical solution corresponding to a simple, one-factor model. Existing computer programs can be modified to incorporate the essential elements of the new model.