Mean reversion, stochastic volatility, convenience yield and presence of jump clustering are well documented salient features of commodity markets, where Asian options are very popular.We propose amodelwhich takes into account all these stylized features.We first state our model under the historical measure, then, after introducing a structure preserving change of measure, we provide a risk-neutral version of the same model and we show how to price geometric and arithmetic Asian options. To this end, we derive semi-closed formulas for the geometric Asian options price and develop a computationally efficient simulation scheme for the price process, allowing to price the arithmetic counterparts using control variate technique. Finally, we propose a simple econometric experiment to document presence of jump clusters in commodity prices and evaluate the performances of the proposed simulation scheme on some parameter sets calibrated on real data.

Commodity Asian option pricing and simulation in a 4-factor model with jump clusters

C. Sgarra
2023-01-01

Abstract

Mean reversion, stochastic volatility, convenience yield and presence of jump clustering are well documented salient features of commodity markets, where Asian options are very popular.We propose amodelwhich takes into account all these stylized features.We first state our model under the historical measure, then, after introducing a structure preserving change of measure, we provide a risk-neutral version of the same model and we show how to price geometric and arithmetic Asian options. To this end, we derive semi-closed formulas for the geometric Asian options price and develop a computationally efficient simulation scheme for the price process, allowing to price the arithmetic counterparts using control variate technique. Finally, we propose a simple econometric experiment to document presence of jump clusters in commodity prices and evaluate the performances of the proposed simulation scheme on some parameter sets calibrated on real data.
2023
Commodity derivatives, Multifactor affine stochastic volatility models, Self-exciting jumps, Simulation, Asian options
File in questo prodotto:
File Dimensione Formato  
Commoditity_Asian_Hawkes4.pdf

Accesso riservato

: Publisher’s version
Dimensione 1.21 MB
Formato Adobe PDF
1.21 MB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11311/1227499
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact