Journal of Energy Markets
ISSN:
1756-3607 (print)
1756-3615 (online)
Editor-in-chief: Derek W. Bunn
Implied volatility surface reconstruction for energy markets: spot price modeling versus surface parametrization
Mikhail V. Deryabin
Abstract
ABSTRACT
We describe and compare two methodologies for calculating the implied volatility of commodity prices (given the market prices of options on futures or implied volatilities, and a forward curve). The first methodology involves fitting an exponential mean-reverting jump-diffusion model to the data, while the second uses a particular parametrization of the surface that ensures no-arbitrage conditions. We use NYMEX data on West Texas Intermediate European-type oil options on futures as an example.
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Copyright Infopro Digital Limited. All rights reserved.
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