Smile modeling in commodity markets

DOI10.1142/S0219024920500193MaRDI QIDQ3304207zbMATH OpenOpenAlexFDO

Authors Emanuele Nastasi, Andrea Pallavicini, Giulio Sartorelli

Publication date 5 August 2020

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1808.09685

zbMATH Keywords

collateralscommoditylocal volatilitymargining proceduresoption pricingstochastic volatility

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to deal with the limited number of options quoted in the market. Cleared commodity markets for futures and options are analyzed to include in the pricing framework specific trading clauses and margining procedures. Numerical examples for calibration and pricing are provided for different commodity products.

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Cites work

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Cited in

(11)

• A deep learning model for gas storage optimization
• Oil futures volatility smiles in 2020: why the Bachelier smile is flatter
• Calibrating a market model with stochastic volatility to commodity and interest rate risk
• A hybrid commodity and interest rate market model
• ROUGH-HESTON LOCAL-VOLATILITY MODEL
• Pricing commodity index options
• Delta hedging bitcoin options with a smile
• A general framework for a joint calibration of VIX and VXX options
• Fast calibration of two-factor models for energy option pricing
• Swing option pricing consistent with futures smiles
• From calendar time to business time: the case of commodity markets

Describes a project that uses

Uses Software

• Anderson

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