Pricing commodity index options

DOI10.1080/14697688.2022.2138775zbMATH Open1518.91286arXiv2208.01289MaRDI QIDQ6158400FDOQ6158400

Authors:

Publication date: 20 June 2023

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies. Numerical examples for calibration and pricing are provided for the S&P GSCI Crude Oil excess-return index.

Full work available at URL: https://arxiv.org/abs/2208.01289

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zbMATH Keywords

option pricingcommodity futuresMarkov projectionsstochastic local volatilitycommodity indices

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Cites Work

• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• A Simplex Method for Function Minimization
• Differential evolution -- a simple and efficient heuristic for global optimization over continuous spaces
• A comparison of biased simulation schemes for stochastic volatility models
• Mimicking the one-dimensional marginal distributions of processes having an Ito differential
• Parallel two-phase methods for global optimization on GPU
• A new calibration of the Heston stochastic local volatility model and its parallel implementation on GPUs
• Smile modeling in commodity markets
• A hybrid commodity and interest rate market model

Cited In (6)

• Storage Costs in Commodity Option Pricing
• Asymptotic Pricing of Commodity Derivatives using Stochastic Volatility Spot Models
• Commodity spread option with cointegration
• Modeling futures price dynamics on the RTS and MICEX indices
• Smile modeling in commodity markets
• Valuation of Commodity-Based Swing Options

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