Time-Varying Deterministic Volatility Model for Options on Wheat Futures

Marco Haase () and Jacqueline Henn
Additional contact information
Marco Haase: Department of Finance, Faculty of Business and Economics, University of Basel, Peter Merian Weg 6, CH-4002 Basel, Switzerland
Jacqueline Henn: Department of Finance, Faculty of Business and Economics, University of Basel, Peter Merian Weg 6, CH-4002 Basel, Switzerland

Commodities, 2024, vol. 3, issue 3, 1-21

Abstract: This study introduces a robust model that captures wheat futures’ volatility dynamics, influenced by seasonality, time to maturity, and storage dynamics, with minimal calibratable parameters. Our approach reduces error-proneness and enhances plausibility checks, offering a reliable alternative to models that are difficult to calibrate. Transferring estimated parameters from liquid to illiquid markets is feasible, which is challenging for models with numerous parameters. This is of practical importance as it improves the modeling of volatility in illiquid markets, where price discovery is less efficient. In liquid markets, on the other hand, where speculative activity is high, we find that implied volatility is usually the best measure. Additionally, the introduced volatility model is suitable for pricing options on wheat futures as a risk-neutral measure.

Keywords: wheat futures and options; volatility; storage; predictability; financialization (search for similar items in EconPapers)
JEL-codes: C0 C1 C2 C3 C4 C5 C6 C7 C8 C9 D4 E3 E6 F0 F1 F3 F4 F5 F6 G1 O1 O5 Q1 Q2 Q4 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2813-2432/3/3/19/pdf (application/pdf)
https://www.mdpi.com/2813-2432/3/3/19/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jcommo:v:3:y:2024:i:3:p:19-354:d:1462854

Access Statistics for this article

Commodities is currently edited by Ms. Wendy Yu

More articles in Commodities from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().