Term Structure of Volatility and Price Jumps in Agricultural Markets - Evidence from Option Data

Empirical evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices contains a term structure depending on both calendar-time and time to maturity. This paper extends Bates (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in volatility. An in-sample fit to market option prices on wheat futures shows that our model outperforms previous models considered in the literature. A numerical example illustrates the economic significance of our results for option valuation.


Issue Date:
2002
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/24874
Total Pages:
33
Series Statement:
Contributed Paper




 Record created 2017-04-01, last modified 2017-08-24

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