| 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 |
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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. |