Term Structure of Volatility and Price Jumps in Agricultural Markets - Evidence from Option Data
AbstractEmpirical evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices contains a term structure depending on both calendar-time and time to maturity. This paper extends Bates (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in volatility. An in-sample fit to market option prices on wheat futures shows that our model outperforms previous models considered in the literature. A numerical example illustrates the economic significance of our results for option valuation.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2002 International Congress, August 28-31, 2002, Zaragoza, Spain with number 24874.
Date of creation: 2002
Date of revision:
Option pricing; Futures; Term structure of volatility; Jump-diffusion; Agricultural markets; Demand and Price Analysis;
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