Black to Negative: Embedded optionalities in commodities markets

Richard J. Martin and Aldous Birchall

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Abstract: We address the modelling of commodities that are supposed to have positive price but, on account of a possible failure in the physical delivery mechanism, may turn out not to. This is done by explicitly incorporating a `delivery liability' option into the contract. As such it is a simple generalisation of the established Black model.

Date: 2020-06, Revised 2020-10
New Economics Papers: this item is included in nep-ore
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