An empirical model comparison for valuing crack spread options
Steffen Mahringer and
Marcel Prokopczuk ()
Energy Economics, 2015, vol. 51, issue C, 177-187
In this paper, we investigate the pricing of crack spread options. Particular emphasis is placed on the question of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast a bivariate GARCH volatility model for cointegrated underlyings with the alternative of modeling the crack spread directly. Conducting an empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance.
Keywords: Crack spread options; Option valuation; Cointegrated underlyings (search for similar items in EconPapers)
JEL-codes: C50 G13 Q40 (search for similar items in EconPapers)
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Working Paper: An Empirical Model Comparison for Valuing Crack Spread Options (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:51:y:2015:i:c:p:177-187
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