In this paper, we study the role of the volatility risk premium for the forecasting performance of implied volatility. We introduce a non-parametric and parsimonious approach to adjust the model-free implied volatility for the volatility risk premium and implement this methodology using more...

Price movements in many commodity markets exhibit significant seasonal patterns. In this paper, we study the effects of seasonal volatility on models’ option pricing performance. In terms of options pricing, a deterministic seasonal component at the price level can be neglected. In contrast,...

Many commodity markets contain a strong seasonal component in volatility. In this paper, the importance of this seasonal behavior for the pricing of commodity options is analyzed. We propose a stochastic volatility model where the drift term of the variance process captures the observed seasonal...

Increasing interconnectivity between electricity wholesale markets requires an efficient allocation scheme in order to provide access to scarce cross-border transmission capacities. In both the US and Europe, existing schemes have primarily induced economically inefficient interconnector use...

We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behaviour of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we explore the relationship between...

We employ a large dataset of physical inventory data on 21 different commodities for the period 1993–2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between...

Price movements in many commodity markets exhibit significant seasonal patterns. However, given an observed futures price, a deterministic seasonal component at the price level is not relevant for the pricing of commodity options. In contrast, this is not true for the seasonal pattern observed...

In this paper, we examine the temporal stability of the evidence for two commodity futures pricing theories. We investigate whether the forecast power of commodity futures can be attributed to the extent to which they exhibit seasonality and we also consider whether there are time varying...

The price of a European option can be computed as the expected value of the payoff function under the risk-neutral measure. For American options and path-dependent options in general, this principle can not be applied. In this paper, we derive a model-free analytical formula for the implied...