Pricing Average Options on Commodities

Kenichiro Shiraya and Akihiko Takahashi
Additional contact information
Kenichiro Shiraya: Mizuho-DL Financial Technology Co.,Ltd.
Akihiko Takahashi: Faculty of Economics, University of Tokyo

No CARF-F-177, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper proposes a new approximation formula for pricing average options on commodities under a stochastic volatility environment. In particular, it derives an option pricing formula under Heston and an extended λ-SABR stochastic volatility models (which includes an extended SABR model as a special case). Moreover, numerical examples support the accuracy of the proposed average option pricing formula.

Pages: 31 pages
Date: 2009-10, Revised 2012-02
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf177

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