Author : Juan Arismendi-Zambrano
Publisher :
ISBN 13 :
Total Pages : 53 pages
Book Rating : 4.:/5 (13 download)
Book Synopsis Seasonal Stochastic Volatility by : Juan Arismendi-Zambrano
Download or read book Seasonal Stochastic Volatility written by Juan Arismendi-Zambrano and published by . This book was released on 2019 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many commodity markets contain a strong seasonal component not only at the price level, but also in volatility. In this paper, the importance of seasonal behavior in the volatility for the pricing of commodity options is analyzed. We propose a seasonally varying long-run mean variance process that is capable of capturing empirically observed patterns. Semi-closed form option valuation formulas are derived. We then empirically study the impact of the proposed seasonal stochastic volatility model on the pricing accuracy of natural gas futures options traded at the New York Mercantile Exchange (NYMEX) and corn futures options traded at the Chicago Board of Trade (CBOT). Our results demonstrate that allowing stochastic volatility to fluctuate seasonally significantly reduces pricing errors for these contracts.