18 Pages Posted: 22 Nov 2006
Date Written: January 24, 2007
In recent years there appeared some organized markets for forward contracts and options on these contracts. In this paper we review shortly the organization of trade on a centralized forward market. Assuming a friction-free market with constant interest rate we build a consistent continuous time framework for the valuation and hedging of options on a forward or a futures contract. This framework takes into account the peculiarities of a forward/futures contract. In our framework we consider the pricing and hedging of options on a forward contract and reconsider the Black-76 model for the pricing and hedging of options on a futures contract.
Keywords: commodity contracts, futures contract, forward contract, option pricing and hedging
JEL Classification: G11, G13
Suggested Citation: Suggested Citation
Zakamulin, Valeriy, On the Pricing and Hedging of Options on Commodity Forward and Futures Contracts - A Note (January 24, 2007). Available at SSRN: https://ssrn.com/abstract=946369 or http://dx.doi.org/10.2139/ssrn.946369