IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v336y2024i1d10.1007_s10479-022-05128-x.html
   My bibliography  Save this article

Seasonality in commodity prices: new approaches for pricing plain vanilla options

Author

Listed:
  • Carme Frau

    (Universitat de les Illes Balears)

  • Viviana Fanelli

    (Management and Business Law)

Abstract

We present a new term-structure model for commodity futures prices based on Trolle and Schwartz (2009), which we extend by incorporating seasonal stochastic volatility represented with two different sinusoidal expressions. We obtain a quasi-analytical representation of the characteristic function of the futures log-prices and closed-form expressions for standard European options’ prices using the fast Fourier transform algorithm. We price plain vanilla options on the Henry Hub natural gas futures contracts, using our model and extant models. We obtain higher accuracy levels with our model than with the extant models.

Suggested Citation

  • Carme Frau & Viviana Fanelli, 2024. "Seasonality in commodity prices: new approaches for pricing plain vanilla options," Annals of Operations Research, Springer, vol. 336(1), pages 1089-1131, May.
    • Handle: RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-022-05128-x
    DOI: 10.1007/s10479-022-05128-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-022-05128-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-022-05128-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Athinan Sutchada & Sanae Rujivan & Boualem Djehiche, 2025. "Analytical Pricing of Commodity Futures with Correlated Jumps and Seasonal Effects: An Empirical Study of Thailand’s Natural Rubber Market," Mathematics, MDPI, vol. 13(5), pages 1-20, February.

    More about this item

    Keywords

    Commodities; Natural gas; Futures prices; Option pricing; Fast Fourier transform; Term-structure model; Analytical solution; Seasonal stochastic volatility; Sinusoidal functions;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-022-05128-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.