PRICING COMMODITY OPTIONS WHEN THE UNDERLYING FUTURES PRICE EXHIBITS TIME-VARYING VOLATILITY

Robert J. Myers and Steven D. Hanson

No 271194, 1991 Annual Meeting, August 4-7, Manhattan, Kansas from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: This paper outlines a model for pricing options when the underlying futures pnce exhibits time-varying volatility. Futures price movements are characterized using a GARCH model. In an empirical application, the GARCH option pricing model predicts market premmms significantly better than the standard Black model, which assumes volatility is constant.

Keywords: Demand and Price Analysis; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 15
Date: 1991-08-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea91:271194

DOI: 10.22004/ag.econ.271194

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