Pricing of Futures with a CARMA(p, q) Model Driven by a Time Changed Brownian Motion

Lorenzo Mercuri (), Andrea Perchiazzo () and Edit Rroji ()
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Lorenzo Mercuri: University of Milan
Andrea Perchiazzo: Vrije Universiteit Brussel
Edit Rroji: University of Milano-Bicocca

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2021, pp 343-348 from Springer

Abstract: Abstract In this paper we propose a continuous time model for modeling the dynamics of a commodity price. In particular, we focus on the term structure of future prices under the assumption that the underlying asset price follows an exponential CARMA(p, q) model where the driving noise is a Time Changed Brownian motion. The use of CARMA models well suits a market where if a shock occurs its effect does not vanish gradually but it may induce a more complex dynamics for the asset. The obtained formula is strictly connected to the cumulant generating function of the subordinator process in the Time Changed Brownian Motion.

Keywords: CARMA; Futures; Pricing (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-78965-7_50

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DOI: 10.1007/978-3-030-78965-7_50

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