Term Structure of Volatility and Price Jumps in Agricultural Markets - Evidence from Option Data

Steen Koekebakker () and Gudbrand D. Lien

No 24874, 2002 International Congress, August 28-31, 2002, Zaragoza, Spain from European Association of Agricultural Economists

Abstract: Empirical evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices contains a term structure depending on both calendar-time and time to maturity. This paper extends Bates (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in volatility. An in-sample fit to market option prices on wheat futures shows that our model outperforms previous models considered in the literature. A numerical example illustrates the economic significance of our results for option valuation.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Pages: 33
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae02:24874

DOI: 10.22004/ag.econ.24874

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