Pricing Commodity Derivatives with Basis Risk and Partial Observations

@inproceedings{Carmona2006PricingCD,
  title={Pricing Commodity Derivatives with Basis Risk and Partial Observations},
  author={Ren{\'e} Carmona and Michael Ludkovski},
  year={2006}
}
We study the problem of pricing claims written on an over-the-counter energy contract. Because the underlying is illiquid, we work with an indifference pricing framework based on a liquid reference contract. Extending current convenience yield frameworks we propose a two-factor partially observed model for the benchmark asset. Moreover, we incorporate direct modeling of the unhedgeable basis. We then study the value function corresponding to utility pricing with exponential utility. After… CONTINUE READING

References

Publications referenced by this paper.
Showing 1-10 of 29 references

Rational hedging and valuation of integrated risks under constant absolute risk aversion

  • D. Becherer
  • 2003
Highly Influential
5 Excerpts

The stochastic behavior of commodity prices: Implications for valuation and hedging

  • E. Schwartz
  • Journal of Finance
  • 1997
Highly Influential
6 Excerpts

Stochastic Equations in Infinite Dimensions

  • G. Da Prato, J. Zabczyk
  • 1992
Highly Influential
3 Excerpts

Valuation of commodity futures and options under stochastic convenience yields, interest rates, and jump diffusions in the spot

  • J. Hilliard, J. Reis
  • Journal of Financial and Quantitative Analysis
  • 1998
Highly Influential
1 Excerpt

Stochastic convenience yield and the pricing of oil contingent claims

  • R. Gibson, E. S. Schwartz
  • Journal of Finance
  • 1990
Highly Influential
3 Excerpts

Forecasting Structural Time Series Models and the Kalman Filter

  • A. Harvey
  • 1989
Highly Influential
2 Excerpts

Similar Papers

Loading similar papers…