Related papers: Pricing commodity swing options
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
Energy markets are strategic to governments and economic development. Several commodities compete as substitutable energy sources and energy diversifiers. Such competition reduces the energy vulnerability of countries as well as portfolios'…
This study focuses on the application of the Heston model to option pricing, employing both theoretical derivations and empirical validations. The Heston model, known for its ability to incorporate stochastic volatility, is derived and…
We characterize the value of swing contracts in continuous time as the unique viscosity solution of a Hamilton-Jacobi-Bellman equation with suitable boundary conditions. The case of contracts with penalties is straightforward, and in that…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
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…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We propose a non-parametric extension with leverage functions to the Andersen commodity curve model. We calibrate this model to market data for WTI and NG including option skew at the standard maturities. While the model can be calibrated…
We consider the problem of supply and demand balancing that is stated as a minimization problem for the total expected revenue function describing the behavior of both consumers and suppliers. In the considered market model we assume that…
The objective of this paper is to introduce the theory of option pricing for markets with informed traders within the framework of dynamic asset pricing theory. We introduce new models for option pricing for informed traders in complete…
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…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
Control reserves are power generation or consumption entities that ensure balance of supply and demand of electricity in real-time. In many countries, they are operated through a market mechanism in which entities provide bids. The system…
We present a path integral method to derive closed-form solutions for option prices in a stochastic volatility model. The method is explained in detail for the pricing of a plain vanilla option. The flexibility of our approach is…
In this paper, we investigate a numerical algorithm for the pricing of swing options, relying on the so-called optimal quantization method. The numerical procedure is described in details and numerous simulations are provided to assert its…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
Black-Scholes (BS) is the standard mathematical model for option pricing in financial markets. Option prices are calculated using an analytical formula whose main inputs are strike (at which price to exercise) and volatility. The BS…
Leveraging a unique dataset of carbon futures option prices traded on the ICE market from December 2015 until December 2020, we present the results from an unprecedented calibration exercise. Within a multifactor stochastic volatility…