Seasonality and the Valuation of Commodity Options

Back, Janis; Prokopczuk, Marcel; Rudolf, Markus

doi:10.2139/ssrn.1514803

Cited by 21 publications

(23 citation statements)

References 41 publications

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“…For some commodities, volatility exhibits seasonality, which could have a mechanical impact on the term structure as well as on spillover effects. To remove seasonal effects, we use a trigonometric function, following Back, Prokopczuk, and Rudolf ():

k_{i} c o s (ω g_{i} (t, τ) - ω θ_{i}),

where

ω = \frac{2 π}{12}

is the cycle length and

g_{i} (t, τ) = t + 12 τ - S_{i} true[\frac{t + 12 τ}{S_{i}} true]

. The operator

[X]

returns the largest integer which is not greater than

x

.…”

Section: Methodsmentioning

confidence: 99%

See 1 more Smart Citation

Volatility term structures in commodity markets

Hollstein

Prokopczuk

Würsig

2019

Journal of Futures Markets

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In this study, we comprehensively examine the volatility term structures in commodity markets. We model state‐dependent spillovers in principal components (PCs) of the volatility term structures of different commodities, as well as that of the equity market. We detect strong economic links and a substantial interconnectedness of the volatility term structures of commodities. Accounting for intra‐commodity‐market spillovers significantly improves out‐of‐sample forecasts of the components of the volatility term structure. Spillovers following macroeconomic news announcements account for a large proportion of this forecast power. There thus seems to be substantial information transmission between different commodity markets.

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k_{i} c o s (ω g_{i} (t, τ) - ω θ_{i}),

where

ω = \frac{2 π}{12}

is the cycle length and

g_{i} (t, τ) = t + 12 τ - S_{i} true[\frac{t + 12 τ}{S_{i}} true]

. The operator

[X]

returns the largest integer which is not greater than

x

.…”

Section: Methodsmentioning

confidence: 99%

Section: Volatility Term Structures In Commodity Marketsmentioning

confidence: 99%

Volatility term structures in commodity markets

Hollstein

Prokopczuk

Würsig

2019

Journal of Futures Markets

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show abstract

“…Seasonality has been recently discussed in pricing commodity options like soybeans because price movements in commodity markets often exhibit significant seasonal patterns. They extended the basic GBM structure by incorporating a seasonal behavior parameter which: (i) is determined by a specific function such as sine and cosine functions [30]; or (ii) follows another stochastic process driven by an independent randomness [31]; or (iii) or both [32], [33]. However, these studies didn not incorporate a jump component due to the possible complex model structure.…”

Section: Related Workmentioning

confidence: 99%

Pricing Average Price Advertising Options When Underlying Spot Market Prices Are Discontinuous

Chen

Kankanhalli

2019

IEEE Trans. Knowl. Data Eng.

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Advertising options have been recently studied as a special type of guaranteed contracts in online advertising, which are an alternative sales mechanism to real-time auctions. An advertising option is a contract which gives its buyer a right but not obligation to enter into transactions to purchase page views or link clicks at one or multiple pre-specified prices in a specific future period. Different from typical guaranteed contracts, the option buyer pays a lower upfront fee but can have greater flexibility and more control of advertising. Many studies on advertising options so far have been restricted to the situations where the option payoff is determined by the underlying spot market price at a specific time point and the price evolution over time is assumed to be continuous. The former leads to a biased calculation of option payoff and the latter is invalid empirically for many online advertising slots. This paper addresses these two limitations by proposing a new advertising option pricing framework. First, the option payoff is calculated based on an average price over a specific future period. Therefore, the option becomes path-dependent. The average price is measured by the power mean, which contains several existing option payoff functions as its special cases. Second, jump-diffusion stochastic models are used to describe the movement of the underlying spot market price, which incorporate several important statistical properties including jumps and spikes, non-normality, and absence of autocorrelations. A general option pricing algorithm is obtained based on Monte Carlo simulation. In addition, an explicit pricing formula is derived for the case when the option payoff is based on the geometric mean. This pricing formula is also a generalized version of several other option pricing models discussed in related studies [1], [2], [3], [4], [5], [6].

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“…The warehouse receipt can be used as collateral (Vasiljević and Zakić, 2006) for obtaining short-term loans, which typically have a lower interest rate compared to other short-term loans (Scheme 1). The warehouse receipt can be sold and will typically generate higher prices than the same product sold with other proof of storage (Back et al, 2013 Besides being the collateral for obtaining traditional short-term loans, warehouse receipt could also be used for repurchase agreement. Repurchase agreement is an agreement on the sale of securities with a commitment to repurchase them at a specified period and at a fixed price (Mirović and Bolesnikov, 2013).…”

Section: The Benefits Of the Use Of Warehouse Receipts For Agriculturmentioning

confidence: 99%

Importance of public warehouse system for financing agribusiness sector

Zakić¹,

Kovačević²,

Ivkov³

et al. 2014

Ekon Polj

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The aim of this study was to determine the economic viability of the use of warehouse receipts for the storage of wheat and corn, based on the analysis of trends in product prices, storage costs in public warehouses and interest rate of loans against warehouse receipts. Agricultural producers are urged to sell grain at the harvest time when the price of agricultural products is usually lowest, mostly because of their needs for financial sources. Instead of selling products, farmers can store them in the public warehouses and use shorttime financing by lending against warehouse receipt with usually lowest interest rate. In following months, farmers can sell products at higher price and repay short-term loan. This study showed that strategy of using public warehouses and postponing the sale of grains after harvest is profitable strategy for agricultural producers.

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Seasonality and the Valuation of Commodity Options

Cited by 21 publications

References 41 publications

Volatility term structures in commodity markets

Volatility term structures in commodity markets

Pricing Average Price Advertising Options When Underlying Spot Market Prices Are Discontinuous

Importance of public warehouse system for financing agribusiness sector

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