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Valuation of commodity derivatives in a new multi-factor model

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  • 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

Suggested Citation

  • Xuemin Yan, 2002. "Valuation of commodity derivatives in a new multi-factor model," Review of Derivatives Research, Springer, vol. 5(3), pages 251-271, October.
    • Handle: RePEc:kap:revdev:v:5:y:2002:i:3:p:251-271
    DOI: 10.1023/A:1020871616158
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    References listed on IDEAS

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