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- Title
Commodity Asian option pricing and simulation in a 4-factor model with jump clusters.
- Authors
Brignone, Riccardo; Gonzato, Luca; Sgarra, Carlo
- 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 a model which 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.
- Subjects
JUMP processes; PRICES; RISK premiums; COMMODITY exchanges; SIMULATION methods &; models
- Publication
Annals of Operations Research, 2024, Vol 336, Issue 1/2, p275
- ISSN
0254-5330
- Publication type
Article
- DOI
10.1007/s10479-022-05152-x