OPT_MILTERSEN_SCHWARTZ

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

Synopsis

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

Arguments

call_put_flag: 'c' for a call and 'p' for a put

p_t: zero coupon bond with expiry at option maturity

f_t: futures price

strike: strike price

t1: time to maturity of the option

t2: time to maturity of the underlying commodity futures contract

v_s: volatility of the spot commodity price

v_e: volatility of the future convenience yield

v_f: volatility of the forward rate of interest

rho_se: correlation between the spot commodity price and the convenience yield

rho_sf: correlation between the spot commodity price and the forward interest rate

rho_ef: correlation between the forward interest rate and the convenience yield

kappa_e: speed of mean reversion of the convenience yield

kappa_f: speed of mean reversion of the forward interest rate