NAKAJIMA Katsushi
   Department     College of International Management
   Position   Associate Professor
Language English
Publication Date 2007/03
Type Research paper (Academic/Professional Journal)
Peer Review Peer reviewed
Title Pricing Commodity Spread Options with Stochastic Term Structure of Convenience Yields and Interest Rates
Contribution Type Joint Work
Journal Asia-Pacific Financial Markets
Volume, Issue, Page 14,pp.157-184
Author and coauthor 前田章
Details The purpose of this research is to provide a valuation formula for commodity spread options. Commodity spread options are options written on the difference of the prices (spread) of two commodities. From the aspect of commodity contingent claims, it is considered that commodity spread options are difficult to evaluate with accuracy because of the existence of the convenience yield. Hence, the model of the convenience yield is the key factor to price commodity spread options. We use the concept of future convenience yields to develop the model that enriches the stochastic behavior of convenience yield. We also introduce Heath-Jarrow-Morton interest rate model to the valuation framework. This general model not only captures the mean reverting feature of the convenience yield, but also allows us to handle a very wide range of shape that the term structure of convenience yield can take. Therefore our model provides various types of models.
DOI https://doi.org/10.1007/s10690-007-9057-6
ISSN 1387-2834