We price Asian options on commodity futures contracts in the presence of stochastic convenience yield, stochastic interest rates and jumps in the commodity spot price. We obtain a closed-form solution for the case of a geometric average option without the presence of jumps, both for continuous...

We use Malliavin calculus and the Clark-Ocone formula to derive the hedging strategy of an arithmetic Asian Call option in general terms. Furthermore we derive an expression for the density of the integral over time of a geometric Brownian motion, which allows us to express hedging strategy and...

In this paper we investigate the applicability of the Albrecher et. al. (2005) comonotonicity approach in the context of various benchmark models for equities and commodities. Instead of classical Levy models as in Albrecher et. al. we focus on the Heston stochastic volatility model, the...

We show that Australian options are equivalent to fixed or floating strike Asian options and consequently that by studying Asian options from the Australian perspective and vice versa, much can be gained. One specific application of this "Australian Approach" leads to a natural dimension...

In this article we derive tractable analytic solutions for futures and options prices for a linear-quadratic jump-diffusion model with seasonal adjustments in stochastic volatility and convenience yield. We then calibrate our model to data from the fish pool futures market, using the extended...

We extend the Rothschild and Stiglitz (1970, 1971) notion of increasing risk to families of random variables and in this way link their approach to the concept of stochastic processes which are increasing in the convex order. These processes have been introduced in seminal work by Strassen...

This paper develops a lattice method for option evaluation in the presence of regime shifts in the correlation structure of assets, aiming at investigating whether the option prices reflect such shifts. Specifically we try to investigate whether option prices reflect switches in the correlation...

We consider the Schwartz 97 two and three factor models, which have been considered as benchmarks for pricing commodity derivatives in the last two decades. In order to take account of sudden regime shifts in commodity prices, we superimpose a regime shifting structure onto this framework. Using...

This paper develops a closed-form model for options on commodities under the assumptions of mean-reversion in the commodity prices and regime-switching in the commodity returns volatility. After a closed-form solution for the option value in constant regimes has been developed, the model is...

This paper investigates the use of the asymptotic Heston solution in locally risk minimizing hedging. The asymptotic Heston solution is presented along with issues that are relevant to its use. Comparison between the exact and asymptotic Heston hedges are made using both simulated and real...