Options on crude oil futures are the most actively traded commodity options. We develop a class of computationally efficient discrete-time jump models that allow for closed-form option valuation, and we use crude oil futures and options data to investigate the economic importance of jumps and...

The contemporary refining sector has to contend with many types of risks, among which price risk is considered to be the foremost. Moreover, refineries define it as a commodity risk and identify it with both opportunities and threats carried by changes in prices of crude oil and products of...

The detrended implied volatility of commodity options (VOL) forecasts the cross section of the commodity futures returns significantly. A zero-cost strategy that is long in low VOL and short in high VOL commodities yields an annualized return of 12.66% and a Sharpe ratio of 0.69. Notably, the...

The article aims to provide an overview of the derivatives market, with a focus on forward and futures contracts. In addition to general concepts, the study explores practical concepts such as daily settlement, margin requirements, basis, and price formation, with current examples from the...

Typically, three types of implied volatility smiles are seen in commodity options: the reverse skew, the smile, and the forward skew. I put forward an economic explanation for all three types of implied volatility smiles based on the idea that a commodity call option is valued in analogy with...