EconPapers    
Economics at your fingertips  
 

Seasonality and the Valuation of Commodity Options

Janis Back, Marcel Prokopczuk () and Markus Rudolf
Additional contact information
Janis Back: WHU - Otto Beisheim School of Management
Markus Rudolf: WHU - Otto Beisheim School of Management

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: Price movements in many commodity markets exhibit significant seasonal patterns. In this paper, we study the effects of seasonal volatility on models' option pricing performance. In terms of options pricing, a deterministic seasonal component at the price level can be neglected. In contrast, this is not true for the seasonal pattern observed in the volatility of the commodity price. Analyzing an extensive sample of soybean and heating oil options, we find that seasonality in volatility is an important aspect to consider when valuing these contracts. The inclusion of an appropriate seasonality adjustment significantly reduces pricing errors and yields more improvement in valuation accuracy than increasing the number of stochastic factors.

Keywords: Commodities; Seasonality; Options Pricing (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2010-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.icmacentre.ac.uk/files/discussion-papers/dp201008.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.icmacentre.ac.uk/files/discussion-papers/dp201008.pdf [302 Found]--> https://www.icmacentre.ac.uk/files/discussion-papers/dp201008.pdf)

Related works:
Journal Article: Seasonality and the valuation of commodity options (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2010-08

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 ().

 
Page updated 2021-10-21
Handle: RePEc:rdg:icmadp:icma-dp2010-08