CIRJE-F-747 | "Pricing Average Options on Commodities" |
Author Name | Shiraya, Kenichiro and Akihiko Takahashi |
Date | July 2010 |
Full Paper | |
Remarks | @@Revised version of CIRJE-F-681 (2009), revised in February 2012; subsequently 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. |