Unspanned stochastic volatility and the pricing of commodity derivatives
نویسندگان
چکیده
Commodity derivatives are becoming an increasingly important part of the global derivatives market. Here we develop a tractable stochastic volatility model for pricing commodity derivatives. The model features unspanned stochastic volatility, quasi-analytical prices of options on futures contracts, and dynamics of the futures curve in terms of a low-dimensional affine state vector. We estimate the model on NYMEX crude oil derivatives using an extensive panel data set of 45,517 futures prices and 233,104 option prices, spanning 4082 business days. We find strong evidence for two, predominantly unspanned, volatility factors. JEL Classification: G13
منابع مشابه
Nber Working Paper Series Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives
The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. ABSTRACT We conduct a comprehensive analysis of unspanned stochastic volatility in commodity markets in general and the crude-oil market in particular. We present model-free results that strongly suggest the presence of unspanned stochastic volatility in th...
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