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Valuation of commodity derivatives in a new multi-factor model

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Author Info
Xuemin Yan
Abstract

This paper extends existing commodity valuation models to allow for stochastic volatility and simultaneous jumps in the spot price and spot volatility. Closed-form valuation formulas for forwards, futures, futures options, geometric Asian options and commodity-linked bonds are obtained using the Heston (1993) and Bakshi and Madan (2000) methodology. Stochastic volatility and jumps do not affect the futures price at a given point in time. However, numerical examples indicate that they play important roles in pricing options on futures. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1020871616158
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Publisher Info
Article provided by Springer in its journal Review of Derivatives Research.

Volume (Year): 5 (2002)
Issue (Month): 3 (October)
Pages: 251-271
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Handle: RePEc:kap:revdev:v:5:y:2002:i:3:p:251-271

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Web page: http://www.springerlink.com/link.asp?id=102989

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Related research
Keywords: Asian options; commodity derivatives; random jumps; stochastic volatility;

Cited by:
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  1. Rodriguez, J.C., 2007. "A Preference-Free Formula to Value Commodity Derivatives," Discussion Paper 2007-92, Tilburg University, Center for Economic Research. [Downloadable!]
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This page was last updated on 2009-12-10.

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