TY - JOUR
T1 - Revisiting the pricing of commodity futures and forwards
AU - Realdon, Marco
PY - 2013
Y1 - 2013
N2 - This article presents a collection of results and formulae for pricing commodity futures, futures options and forward contracts. These results extend previous work by Schwartz (1997). Unlike in Hilliard and Reis (1998), the model in this article predicts that jumps in the spot price affect futures and forward prices. Regime changes in the mean reversion level and in the volatility of spot prices also affect futures and forward prices. The discrete time setting, as the continuous time one, provides tractable pricing formulae, but it seems preferable to the continuous time setting for econometric estimation. In discrete time the market price of risk that affects futures and forwards can be more freely specified.
AB - This article presents a collection of results and formulae for pricing commodity futures, futures options and forward contracts. These results extend previous work by Schwartz (1997). Unlike in Hilliard and Reis (1998), the model in this article predicts that jumps in the spot price affect futures and forward prices. Regime changes in the mean reversion level and in the volatility of spot prices also affect futures and forward prices. The discrete time setting, as the continuous time one, provides tractable pricing formulae, but it seems preferable to the continuous time setting for econometric estimation. In discrete time the market price of risk that affects futures and forwards can be more freely specified.
KW - commodity futures pricing
KW - forward pricing
KW - Gaussian term structure model
KW - mean-reverting spot price
KW - commodity futures options
KW - discrete time
U2 - 10.1080/09603107.2012.665594
DO - 10.1080/09603107.2012.665594
M3 - Article
VL - 23
SP - 233
EP - 240
JO - Applied Financial Economics
JF - Applied Financial Economics
SN - 0960-3107
IS - 3
ER -