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Munich Personal RePEc Archive

Generic Price Model for Commodity Derivatives

Lee, David (2022): Generic Price Model for Commodity Derivatives.

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Abstract

This article develops a new framework for modeling the dynamics of commodity forward curves and pricing commodity derivatives. The model accommodates a generic calibration procedure to ensure that the model prices for vanilla options match exactly the market prices. Empirically we show that the model prices are within the bid-offer spreads, indicating prima facie that the model performs quite well. We also show that the model prices for non-vanilla options are in good agreement with the market prices and the implied model dynamics are in good agreement with the characteristics of the historical data series.

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