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A Pricing Model for Quantity Contracts

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  • Knut K. Aase

Abstract

An economic model is proposed for a combined price futures and yield futures market. The innovation of the article is a technique of transforming from quantity and price to a model of two genuine pricing processes. This is required in order to apply modern financial theory. It is demonstrated that the resulting model can be estimated solely from data for a yield futures market and a price futures market. We develop a set of pricing formulas, some of which are partially tested, using price data for area yield options from the Chicago Board of Trade. Compared to a simple application of the standard Black and Scholes model, our approach seems promising. Copyright The Journal of Risk and Insurance, 2004.

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Bibliographic Info

Article provided by The American Risk and Insurance Association in its journal The Journal of Risk and Insurance.

Volume (Year): 71 (2004)
Issue (Month): 4 ()
Pages: 617-642

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Handle: RePEc:bla:jrinsu:v:71:y:2004:i:4:p:617-642

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Cited by:
  1. Newell, Richard G. & Pizer, William A., 2008. "Indexed regulation," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 221-233, November.

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