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Pricing average options on commodities

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  • Kenichiro Shiraya
  • Akihiko Takahashi

Abstract

This study 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 λ‐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. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark Mark 31:407–439, 2011

Suggested Citation

  • Kenichiro Shiraya & Akihiko Takahashi, 2011. "Pricing average options on commodities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(5), pages 407-439, May.
    • Handle: RePEc:wly:jfutmk:v:31:y:2011:i:5:p:407-439
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    Cited by:

    1. Fred Espen Benth, 2021. "Pricing of Commodity and Energy Derivatives for Polynomial Processes," Mathematics, MDPI, vol. 9(2), pages 1-30, January.
    2. Kenichiro Shiraya & Akihiko Takahashi, 2015. "Pricing Average and Spread Options under Local-Stochastic Volatility Jump-Diffusion Models," CARF F-Series CARF-F-365, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Kenichiro Shiraya & Akihiko Takahashi, 2015. "An Asymptotic Expansion for Local-Stochastic Volatility with Jump Models," CIRJE F-Series CIRJE-F-998, CIRJE, Faculty of Economics, University of Tokyo.
    4. Nicolas Langren'e & Geoffrey Lee & Zili Zhu, 2015. "Switching to non-affine stochastic volatility: A closed-form expansion for the Inverse Gamma model," Papers 1507.02847, arXiv.org, revised Mar 2016.
    5. Nicolas Langrené & Geoffrey Lee & Zili Zhu, 2016. "Switching To Nonaffine Stochastic Volatility: A Closed-Form Expansion For The Inverse Gamma Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(05), pages 1-37, August.
    6. Akihiko Takahashi & Yukihiro Tsuzuki, 2014. "A New Improvement Scheme for Approximation Methods of Probability Density Functions," CARF F-Series CARF-F-350, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    7. Kenichiro Shiraya & Akihiko Takahashi, 2015. "An Asymptotic Expansion for Local-Stochastic Volatility with Jump Models (Forthcoming in Stochastics)," CARF F-Series CARF-F-377, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    8. Colin Turfus & Alexander Shubert, 2017. "ANALYTIC PRICING OF CoCo BONDS," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(05), pages 1-26, August.
    9. Kenichiro Shiraya & Akihiko Takahashi, 2015. "Pricing Average and Spread Options under Local-Stochastic Volatility Jump-Diffusion Models," CIRJE F-Series CIRJE-F-980, CIRJE, Faculty of Economics, University of Tokyo.
    10. Akihiko Takahashi & Toshihiro Yamada, 2014. "On Error Estimates for Asymptotic Expansions with Malliavin Weights -Application to Stochastic Volatility Model- (Revised version of CARF-F-324; Forthcoming in "Mathematics of Operations Research," CARF F-Series CARF-F-347, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Sep 2014.
    11. Kenichiro Shiraya & Akihiko Takahashi, 2017. "Pricing Average and Spread Options under Local-Stochastic Volatility Jump-Diffusion Models (Revised version of CARF-F-365 : Subsequently published in Mathematics of Operations Research)," CARF F-Series CARF-F-426, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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