Related papers: Pricing of commodity derivatives on processes with…
This paper introduces an information-based model for the pricing of storable commodities such as crude oil and natural gas. The model uses the concept of market information about future supply and demand as a basis for valuation. Physical…
We study the forward price dynamics in commodity markets realized as a process with values in a Hilbert space of absolutely continuous functions defined by Filipovi\'c. The forward dynamics are defined as the mild solution of a certain…
We investigate the problem of pricing derivatives under a fractional stochastic volatility model. We obtain an approximate expression of the derivative price where the stochastic volatility can be composed of deterministic functions of time…
For a commodity spot price dynamics given by an Ornstein-Uhlenbeck process with Barndorff-Nielsen and Shephard stochastic volatility, we price forwards using a class of pricing measures that simultaneously allow for change of level and…
Recent empirical studies suggest that the volatility of an underlying price process may have correlations that decay slowly under certain market conditions. In this paper, the volatility is modeled as a stationary process with long-range…
In this study we consider the pricing of energy derivatives when the evolution of spot prices follows a tempered stable or a CGMY driven Ornstein- Uhlenbeck process. To this end, we first calculate the characteristic function of the…
In this study we consider the pricing of energy derivatives when the evolution of spot prices is modeled with a normal tempered stable driven Ornstein-Uhlenbeck process. Such processes are the generalization of normal inverse Gaussian…
We obtain option pricing formulas for stock price models in which the drift and volatility terms are functionals of a continuous history of the stock prices. That is, the stock dynamics follows a nonlinear stochastic functional differential…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
Based on forward curves modelled as Hilbert-space valued processes, we analyse the pricing of various options relevant in energy markets. In particular, we connect empirical evidence about energy forward prices known from the literature to…
In electricity markets, it is sensible to use a two-factor model with mean reversion for spot prices. One of the factors is an Ornstein-Uhlenbeck (OU) process driven by a Brownian motion and accounts for the small variations. The other…
The aim of this paper is to present a simple stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range…
This article presents a generic framework for modeling the dynamics of forward curves in commodity market as commodity derivatives are typically traded by futures or forwards. We have theoretically demonstrated that commodity prices are…
In this paper we consider the pricing of options on interest rates such as caplets and swaptions in the L\'evy Libor model developed by Eberlein and \"Ozkan (2005). This model is an extension to L\'evy driving processes of the classical…
We present a stochastic local volatility model for derivative contracts on commodity futures. The aim of the model is to be able to recover the prices of derivative claims both on futures contracts and on indices on futures strategies.…
Most energy and commodity markets exhibit mean-reversion and occasional distinctive price spikes, which results in demand for derivative products which protect the holder against high prices. To this end, in this paper we present exact and…
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity…
We model the logarithm of the price (log-price) of a financial asset as a random variable obtained by projecting an operator stable random vector with a scaling index matrix $\underline{\underline{E}}$ onto a non-random vector. The scaling…
The article is devoted to models of financial markets with stochastic volatility, which is defined by a functional of Ornstein-Uhlenbeck process or Cox-Ingersoll-Ross process. We study the question of exact price of European option. The…
We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis,…