Bachelier – a strange new world for oil options

Model tuned to negative prices has implications for pricing, margining and delta hedging

A single, wild trading day in April upset decades of established options pricing practice in oil markets.

When the price of West Texas Intermediate (WTI) oil futures traded at CME plummeted to -$40 a barrel on April 20, the Black-Scholes options pricing model – which cannot compute negative prices – was pushed to its theoretical limits.   

CME responded on April 22 by switching to the 120-year old Bachelier options pricing model, which can accept negative prices. Ice Clear Europe followed suit

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here