OPT_MILTERSEN_SCHWARTZ

OPT_MILTERSEN_SCHWARTZ

Synopsis

OPT_MILTERSEN_SCHWARTZ(call_put_flag,p_t,f_t,x,t1,t2,v_s,v_e,v_f,rho_se,rho_sf,rho_ef,kappa_e,kappa_f)

Description

OPT_MILTERSEN_SCHWARTZ models the theoretical price of options on commodities futures according to Miltersen & Schwartz.

call_put_flag is 'c' or 'p' to indicate whether the option is a call or a put.

p_t is a zero coupon bond with expiry at option maturity.

f_t is the futures price.

x is the strike price.

t1 is the time to maturity of the option.

t2 is the time to maturity of the underlying commodity futures contract.

v_s is the volatility of the spot commodity price.

v_e is the volatility of the future convenience yield.

v_f is the volatility of the forward rate of interest.

rho_se is correlation between the spot commodity price and the convenience yield.

rho_sf is correlation between the spot commodity price and the forward interest rate.

rho_ef is correlation between the forward interest rate and the convenience yield.

kappa_e is the speed of mean reversion of the convenience yield.

kappa_f is the speed of mean reversion of the forward interest rate.

Examples