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Pricing of Futures with a CARMA(p, q) Model Driven by a Time Changed Brownian Motion

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Lorenzo Mercuri

    (University of Milan)

  • Andrea Perchiazzo

    (Vrije Universiteit Brussel)

  • Edit Rroji

    (University of Milano-Bicocca)

Abstract

In this paper we propose a continuous time model for modeling the dynamics of a commodity price. In particular, we focus on the term structure of future prices under the assumption that the underlying asset price follows an exponential CARMA(p, q) model where the driving noise is a Time Changed Brownian motion. The use of CARMA models well suits a market where if a shock occurs its effect does not vanish gradually but it may induce a more complex dynamics for the asset. The obtained formula is strictly connected to the cumulant generating function of the subordinator process in the Time Changed Brownian Motion.

Suggested Citation

  • Lorenzo Mercuri & Andrea Perchiazzo & Edit Rroji, 2021. "Pricing of Futures with a CARMA(p, q) Model Driven by a Time Changed Brownian Motion," Springer Books, in: Marco Corazza & Manfred Gilli & Cira Perna & Claudio Pizzi & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 343-348, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-78965-7_50
    DOI: 10.1007/978-3-030-78965-7_50
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    Keywords

    CARMA; Futures; Pricing;
    All these keywords.

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