Energy Commodities : New Approaches For Pricing Options Materias Primas de Energía : Nuevos Enfoques para la Valoración de Opciones

  1. María del Carmen Frau Gomila
Supervised by:
  1. John Crosby Director
  2. María Dolores Robles Fernández Director

Defence university: Universidad Complutense de Madrid

Year of defence: 2022

  1. Análisis Económico y economía cuantitativa

Type: Thesis


This thesis focuses on the valuation of standard European call and put options, of which the underlyings are the prices of futures contracts on two energy commodities, specifically West Texas Intermediate (WTI) crude oil (Chapter 1) and Henry Hub (HH) natural gas (Chapter 2). Both are quoted in USD and listed in the New York Commodities Exchange (NY MEX), which specialises in derivatives (futures and options) of agricultural products, precious metals and energy commodities. European spread options are also considered (Chapter 3). In order to define pricing, it is necessary to start by establishing a model for the underlying prices in each case; working with futures prices, the focus is on term-structure models where the time to maturity will be relevant. The starting point is the model proposed in Trolle & Schwartz (2009), considered as the benchmark. The stylised facts represented in this model are the following: (i) prices are stochastic; (ii) the cost of carry is stochastic; (iii) the correlation is negative between spot prices and their cost of carry; (iv) there is a mean-reversion in spot prices (due to the aforementioned negative correlation); and (v) the volatility of futures prices is stochastic and declining with the expiration of the contract (Samuelson effect)...