A Pricing Model for Quantity Contracts

Knut Aase

Journal of Risk & Insurance, 2004, vol. 71, issue 4, 617-642

Abstract: An economic model is proposed for a combined price futures and yield futures market. The innovation of the article is a technique of transforming from quantity and price to a model of two genuine pricing processes. This is required in order to apply modern financial theory. It is demonstrated that the resulting model can be estimated solely from data for a yield futures market and a price futures market. We develop a set of pricing formulas, some of which are partially tested, using price data for area yield options from the Chicago Board of Trade. Compared to a simple application of the standard Black and Scholes model, our approach seems promising.

Date: 2004
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https://doi.org/10.1111/j.0022-4367.2004.00106.x

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