NAKAJIMA Katsushi    Department   Ritsumeikan Asia Pacific University  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