A Pricing Model for Quantity Contracts

26 Pages Posted: 23 Dec 2004

See all articles by Knut K. Aase

Knut K. Aase

Norwegian School of Economics (NHH) - Department of Business and Management Science

Abstract

An economic model is proposed for a combined price futures and yield futures market. The innovation of the article is a technique of transforming from quantity and price to a model of two genuine pricing processes. This is required in order to apply modern financial theory. It is demonstrated that the resulting model can be estimated solely from data for a yield futures market and a price futures market. We develop a set of pricing formulas, some of which are partially tested, using price data for area yield options from the Chicago Board of Trade. Compared to a simple application of the standard Black and Scholes model, our approach seems promising.

Suggested Citation

Aase, Knut K., A Pricing Model for Quantity Contracts. Journal of Risk and Insurance, Vol. 71, No. 4, pp. 617-642, December 2004. Available at SSRN: https://ssrn.com/abstract=632825

Knut K. Aase (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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