CIRJE-F-681 | "Pricing Average Options on Commodities" |
Author Name | Shiraya, Kenichiro and Akihiko Takahashi |
Date | October 2009 |
Full Paper | @ |
Remarks | @Revised in May 2010; revised as CIRJE-F-747 (2010); subsequenlty published in Journal of Futures Markets, Vol.31-5,407-439, 2011. |
Abstract |
This paper proposes a new approximation formula for pricing average options on commodities under a stochastic volatility environment. In particular, it derives an option pricing formula under Heston and an extended λ-SABR stochastic volatility models (which includes an extended SABR model as a special case). Moreover, numerical examples support the accuracy of the proposed average option pricing formula. |