Pricing average options on commodities | Zendy

Shiraya Kenichiro | Zendy; Takahashi Akihiko | Zendy

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Pricing average options on commodities

Author(s) -

Shiraya Kenichiro,

Takahashi Akihiko

Publication year - 2011

Publication title -

journal of futures markets

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.88

H-Index - 55

eISSN - 1096-9934

pISSN - 0270-7314

DOI - 10.1002/fut.20481

Subject(s) - sabr volatility model , stochastic volatility , heston model , implied volatility , volatility (finance) , valuation of options , economics , volatility smile , econometrics , mathematical economics , financial economics

This study proposes a new approximation formula for pricing average options on commodities under a stochastic volatility environment. In particular, it derives an option pricing formula under Heston and an extended λ‐SABR stochastic volatility models (which includes an extended SABR model as a special case). Moreover, numerical examples support the accuracy of the proposed average option pricing formula. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark Mark 31:407–439, 2011

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