Pricing average options on commodities

Kenichiro Shiraya and Akihiko Takahashi

Journal of Futures Markets, 2011, vol. 31, issue 5, 407-439

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

Date: 2011
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