XVII Workshop on Quantitative Finance -- Session on ENERGY (Sala Stemmi)
timetable:
Fri 29 Jan, 14:00 - 15:30, Sala Stemmi
<< Go back
communication: Pricing options on forwards in energy markets: the role of mean reversion’s speed
speaker: Maren Schmeckabstract: Consider the problem of pricing options on forwards in energy markets. In Benthand Schmeck 3 an underlying spot price has been considered that highly fluctuates but also quickly mean reverts to its original level. In such a case, they found that fast mean reverting spikes do not matter in option pricing and that the Black 76 formula gives therefore a good approximation to options’ prices. In this paper we study the impact of slowly mean reverting components in the spot price dynamics. We find both upper and lower error bounds for the option’s price and hedging strategy. As a consequence, we show how mean reversion contributes to the option price.
timetable:
Fri 29 Jan, 14:00 - 15:30, Sala Stemmi
<< Go back