A0366
Title: Seasonality in commodity prices: New approaches for pricing plain vanilla options
Authors: Viviana Fanelli - University of Bari (Italy)
Carme Frau - University of Balearic Islands (Spain) [presenting]
Abstract: A new term-structure model is presented for commodity futures prices, which extends a previous model by incorporating seasonal stochastic volatility represented with two different sinusoidal expressions. We obtain a quasi-analytical representation of the characteristic function of the futures log-prices and closed-form expressions for standard European options' prices using the fast Fourier transform algorithm. We price plain vanilla options on the Henry Hub natural gas futures contracts, using our model and extant models. We obtain higher accuracy levels with our model than with the extant models.
