On the Pricing and Hedging of Options on Commodity Forward and Futures Contracts - A Note

18 Pages Posted: 22 Nov 2006  

Valeriy Zakamulin

University of Agder - School of Business and Law

Date Written: January 24, 2007

Abstract

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

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

Valeriy Zakamulin (Contact Author)

University of Agder - School of Business and Law ( email )

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Norway
+47 38141039 (Phone)

HOME PAGE: http://vzakamulin.weebly.com/

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