Pricing options on forwards in energy markets: the role of mean reversion's speed

Maren Diane Schmeck

Papers from arXiv.org

Abstract: Consider the problem of pricing options on forwards in energy markets, when spot prices follow a geometric multi-factor model in which several rates of mean reversion appear. In this paper we investigate the role played by slow mean reversion when pricing and hedging options. In particular, we determine both upper and lower bounds for the error one makes neglecting low rates of mean reversion in the spot price dynamics.

Date: 2016-02
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1602.03402

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