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We consider the problem of hedging European options written on natural gas futures, in a market where prices of traded … assets exhibit jumps, by trading in the underlying asset. We provide a general expression for the hedging strategy which … minimizes the variance of the terminal hedging error, in terms of stochastic integral representations of the payoffs of the …
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Does modelling stochastic interest rates, beyond stochastic volatility, improve pricing performanceon long-dated commodity derivatives? To answer this question, we consider futuresprice models for commodity derivatives that allow for stochastic volatility and stochastic interestrates and a...
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In electricity markets, futures contracts typically function as a swap since they deliver the underlying over a period of time. In this paper, we introduce a market price for the delivery periods of electricity swaps, thereby opening an arbitrage-free pricing framework for derivatives based on...
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Closed-form pricing formulae and option Greeks are obtained for European-type options using an orthogonal polynomial series -- complex Fourier series. We assume that risky assets are driven by exponential Lévy processes and stochastic volatility models. We provide a succinct error analysis to...
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). The purpose is to by-pass the derivative of an (irregular) pay-off function in a jump-type market by introducing a weight … formula holds for subordinated Brownian motion and, this representation is useful in developing simple and tractable hedging …
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