Pricing Average Options on Commodities

Kenichiro Shiraya and Akihiko Takahashi
Additional contact information
Kenichiro Shiraya: Mizuho-DL Financial Technology Co.,Ltd.
Akihiko Takahashi: Faculty of Economics, University of Tokyo

No CIRJE-F-681, CIRJE F-Series from CIRJE, 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.

Pages: 28pages
Date: 2009-10
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2009cf681

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