Jumps in commodity prices: new approaches for pricing plain vanilla options

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dc.contributor.author Crosby, John
dc.contributor.author Frau, Carme
dc.date.accessioned 2023-03-14T07:29:30Z
dc.date.available 2023-03-14T07:29:30Z
dc.identifier.uri http://hdl.handle.net/11201/160275
dc.description.abstract [eng] We present a new term-structure model for commodity futures prices based on Trolle and Schwartz (2009), which we extend by incorporating multiple jump processes. Our work explores the valuation of plain vanilla options on futures prices when the spot price follows a log-normal process, the forward cost of carry curve and the volatility are stochastic variables, and the spot price and the forward cost of carry allow for time-dampening jumps. We obtain an analytical representation of the characteristic function of the futures prices and, hence, also for plain vanilla option prices using the fast Fourier transform methodology. We price options on WTI crude oil futures contracts using our model and extant models. We obtain higher accuracy than earlier models and save significantly in computing time.
dc.format application/pdf
dc.relation.isformatof Versió postprint del document publicat a: https://doi.org/10.1016/j.eneco.2022.106302
dc.relation.ispartof Energy Economics, 2022, vol. 114, num. 106302, p. 1-22
dc.subject.classification 33 - Economia
dc.subject.other 33 - Economics. Economic science
dc.title Jumps in commodity prices: new approaches for pricing plain vanilla options
dc.type info:eu-repo/semantics/article
dc.type info:eu-repo/semantics/acceptedVersion
dc.date.updated 2023-03-14T07:29:31Z
dc.subject.keywords Commodities
dc.subject.keywords option pricing
dc.subject.keywords Fast Fourier Transform
dc.subject.keywords analytical solution
dc.subject.keywords stochastic volatility and jump diffusion
dc.rights.accessRights info:eu-repo/semantics/openAccess
dc.identifier.doi https://doi.org/10.1016/j.eneco.2022.106302

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