An Empirical Model Comparison for Valuing Crack Spread Options
Steffen Mahringer and
Marcel Prokopczuk ()
Additional contact information
Steffen Mahringer: ICMA Centre, University of Reading
ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading
In this paper, we investigate the pricing of crack spread options. The special focus is laid on the question, of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast the bivariate GARCH volatility model for co-integrated underlyings of Duan and Pliska (2004), with the alternative of modeling the crack spread directly. Conducting an extensive empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance.
Keywords: Crack Spread Options; Option Valuation; Co-integrated Underlyings (search for similar items in EconPapers)
JEL-codes: C50 G13 Q40 (search for similar items in EconPapers)
Pages: 45 pages
New Economics Papers: this item is included in nep-cfn
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.icmacentre.ac.uk/files/dp201001.pdf [302 Found]--> https://www.icmacentre.ac.uk/files/dp201001.pdf)
Journal Article: An empirical model comparison for valuing crack spread options (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2010-01
Access Statistics for this paper
More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().