Pricing Options on Agricultural Futures: An Application of the Constant Elasticity of Variance Option Pricing Model
نویسنده
چکیده
The pricing of options on futures has generated much recent interest from both an academic as well as a trading persp ctive. These conti gent claims provide new avenues for the allocation of price risk among investors and have been well received by the financial markets. For example, options on Treasury bond futures began trading at the Chicago Board of Trade in 1982 and have been a very successful innovation. This success has assured the commodity exchanges of the value of options trading, and the development of options on other types of futures is being accelerated. Currently, options on certain agricultural futures are being traded in the United States under a three-year pilot program administered by the Commodity Futures Trading Commission. Many recent academic studies have made significant contributions to option pricing theory using varying asset price behavior assumptions. Among these are the Black-Scholes formula (1973), Roll's American call option formula (1977), Cox's constant elasticity of variance (CEV) formula (1975), Merton's jump-diffusion formula (1976), Binomial pricing method (Cox, Ross, and Rubinstein, ) 979), and various numerical methods for option pricing. Each of the above formulas and methods is based on the continuous-time (or limiting case)! no-arbitrage pricing framework of Black and Scholes. Within this
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