Year: 2023
Type: article
Abstract: Mean reversion, stochastic volatility, convenience yield and presence of jump clustering are well documented salient features of commodity markets, where Asian options are very popular. We propose a model which takes into account all these stylized features. We first state our model under the historical measure, then, after introducing a structure preserving change of measure, we provide a risk-neutral version of the same model and we show how to price geometric and arithmetic Asian options. To this end, we derive semi-closed formulas for the geometric Asian options price and develop a computationally efficient simulation scheme for the price process, allowing to price the arithmetic counterparts using control variate technique. Finally, we propose a simple econometric experiment to document presence of jump clusters in commodity prices and evaluate the performances of the proposed simulation scheme on some parameter sets calibrated on real data.
Source: Annals of Operations Research
Authors: Riccardo Brignone, Luca Gonzato, Carlo Sgarra
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $2,990
OpenAlex ID: W4313679358