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Pricing Average Options on Commodities

Author

Listed:
  • Kenichiro Shiraya

    (Mizuho-DL Financial Technology Co.,Ltd.)

  • Akihiko Takahashi

    (Faculty of Economics, University of Tokyo)

Abstract

This paper proposes a new approximation formula for pricing average options on commodities under a stochastic volatility environment. In particular, it derives an option pricing formula under Heston and an extended lambda-SABR stochastic volatility models (which includes an extended SABR model as a special case). Moreover, numerical examples support the accuracy of the proposed average option pricing formula.

Suggested Citation

  • Kenichiro Shiraya & Akihiko Takahashi, 2009. "Pricing Average Options on Commodities," CIRJE F-Series CIRJE-F-681, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2009cf681
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