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arXiv · 1808.09685

Smile Modelling in Commodity Markets

Emanuele Nastasi·Andrea Pallavicini·Giulio Sartorelli
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Abstract

We present a stochastic-local volatility model for derivative contracts on commodity futures able to describe forward-curve and smile dynamics with a fast calibration to liquid market quotes. A parsimonious parametrization is introduced to deal with the limited number of options quoted in the market. Cleared commodity markets for futures and options are analyzed to include in the pricing framework specific trading clauses and margining procedures. Numerical examples for calibration and pricing are provided for different commodity products.

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Emanuele Nastasi, Andrea Pallavicini, Giulio Sartorelli. 2018-08-29. Smile Modelling in Commodity Markets. https://arxiv.org/abs/1808.09685

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