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Explicit Option Pricing Formula for a Mean-Reverting Asset in Energy Markets

In: Modeling and Pricing of Swaps for Financial and Energy Markets with Stochastic Volatilities

Author

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  • Anatoliy Swishchuk

    (University of Calgary, Canada)

Abstract

The following sections are included:IntroductionMean-Reverting Asset Model (MRAM)Explicit Option Pricing Formula for European Call Option for MRAM under Physical MeasureExplicit Solution of MRAMProperties of the Process $\tilde W(\varphi _t^{ - 1} )$Explicit Expression for the Process $\tilde W(\varphi _t^{ - 1} )$Some Properties of the Mean-Reverting Asset StExplicit Option Pricing Formula for European Call Option for MRAM under Physical MeasureMean-Reverting Risk-Neutral Asset Model (MRRNAM)Explicit Option Pricing Formula for European Call Option for MRRNAMExplicit Solution for the Mean-Reverting Risk-Neutral Asset ModelSome Properties of the Process $\tilde W^* ((\varphi _t^* )^{ - 1} )$Explicit Expression for the Process $\tilde W^* (\varphi _t^{ - 1} )$Some Properties of the Mean-Reverting Risk-Neutral Asset StExplicit Option Pricing Formula for European Call Option for MRAM under Risk-Neutral MeasureBlack-Scholes Formula Follows: L* = 0 and a* = −rNumerical Example: AECO Natural GAS Index (1 May 1998–30 April 1999)SummaryBibliography

Suggested Citation

  • Anatoliy Swishchuk, 2013. "Explicit Option Pricing Formula for a Mean-Reverting Asset in Energy Markets," World Scientific Book Chapters, in: Modeling and Pricing of Swaps for Financial and Energy Markets with Stochastic Volatilities, chapter 18, pages 255-271, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814440134_0018
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