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Contribution Details
Type | Book Chapter |
Scope | Discipline-based scholarship |
Title | The Impact of Cointegration on Commodity Spread Options |
Organization Unit | |
Authors |
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Editors |
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Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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Booktitle | Innovations in Derivatives Markets |
ISBN | 978-3-319-33445-5 |
ISSN | 2194-1009 |
Number | 165 |
Place of Publication | Cham |
Publisher | Springer |
Page Range | 421 - 435 |
Date | 2016 |
Abstract Text | In this work we explore the implications of cointegration in a system of commodity prices on the premiums of options written on various spreads on the futures prices of these commodities. We employ a parsimonious, yet comprehensive model for cointegration in a system of commodity prices. The model has an exponential affine structure and is flexible enough to allow for an arbitrary number of cointegration relationships. We conduct an extensive simulation study on pricing spread options. We argue that cointegration creates an upward sloping term structure of correlation, that in turn lowers the volatility of spreads and consequently the price of options on them. |
Free access at | DOI |
Digital Object Identifier | 10.1007/978-3-319-33446-2_20 |
Other Identification Number | merlin-id:14481 |
PDF File | Download from ZORA |
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