Black to Negative: Embedded optionalities in commodities markets
Abstract
We address the modelling of commodities that are supposed to have positive price but, on account of a possible failure in the physical delivery mechanism, may turn out not to. This is done by explicitly incorporating a `delivery liability' option into the contract. As such it is a simple generalisation of the established Black model.
- Publication:
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arXiv e-prints
- Pub Date:
- June 2020
- DOI:
- 10.48550/arXiv.2006.06076
- arXiv:
- arXiv:2006.06076
- Bibcode:
- 2020arXiv200606076M
- Keywords:
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- Quantitative Finance - Pricing of Securities;
- Quantitative Finance - Risk Management
- E-Print:
- Extended section on Levy models and given explicit formulae and numerical example. Corrected typo in put/call formulae (eq.5,6 in this vsn)