Valuation of commodity derivatives in a new multi-factor model
AbstractThis 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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Bibliographic InfoArticle provided by Springer in its journal Review of Derivatives Research.
Volume (Year): 5 (2002)
Issue (Month): 3 (October)
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Web page: http://www.springerlink.com/link.asp?id=102989
Asian options; commodity derivatives; random jumps; stochastic volatility;
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- Rodriguez, J.C., 2007. "A Preference-Free Formula to Value Commodity Derivatives," Discussion Paper 2007-92, Tilburg University, Center for Economic Research.
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