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A Pricing Model for Quantity Contracts

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  • Knut K. Aase

Abstract

An economic model is proposed for a combined price futures and yield futures market. The innovation of the article is a technique of transforming from quantity and price to a model of two genuine pricing processes. This is required in order to apply modern financial theory. It is demonstrated that the resulting model can be estimated solely from data for a yield futures market and a price futures market. We develop a set of pricing formulas, some of which are partially tested, using price data for area yield options from the Chicago Board of Trade. Compared to a simple application of the standard Black and Scholes model, our approach seems promising.

Suggested Citation

  • Knut K. Aase, 2004. "A Pricing Model for Quantity Contracts," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 617-642, December.
    • Handle: RePEc:bla:jrinsu:v:71:y:2004:i:4:p:617-642
    DOI: 10.1111/j.0022-4367.2004.00106.x
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    References listed on IDEAS

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    Cited by:

    1. Newell, Richard G. & Pizer, William A., 2008. "Indexed regulation," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 221-233, November.

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