In this paper, we propose a commodity pricing model that extends Gibson-Schwartz two-factor model to incorporate the effect of linear relations among commodity prices, which include co-integration under certain conditions. We derive futures and call option pricing formulae, and show that unlike...

We derive the valuation formula of a European call option on the spread of two cointegrated commodity prices, based on the GSC (Gibson-Schwartz with cointegration) model. We also analyze the American commodity spread option including the early exercise premium representation and an analytical...