Valuation of commodity derivatives in a new multi-factor model

Xuemin Yan

Review of Derivatives Research, 2002, vol. 5, issue 3, 271 pages

Abstract: This paper extends existing commodity valuation models to allow for stochastic volatility and simultaneous jumps in the spot price and spot volatility. Closed-form valuation formulas for forwards, futures, futures options, geometric Asian options and commodity-linked bonds are obtained using the Heston (1993) and Bakshi and Madan (2000) methodology. Stochastic volatility and jumps do not affect the futures price at a given point in time. However, numerical examples indicate that they play important roles in pricing options on futures. Copyright Kluwer Academic Publishers 2002

Keywords: Asian options; commodity derivatives; random jumps; stochastic volatility (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1023/A:1020871616158

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