Freight derivatives pricing for decoupled mean-reverting diffusion and jumps
| Autor: | Panos K. Pouliasis, Nikos C. Papapostolou, Kostas Andriosopoulos, Ioannis Kyriakou |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
050210 logistics & transportation
Mathematical optimization 050208 finance 05 social sciences Transportation HG Exponential function Equilibrium level Lognormal model 0502 economics and business Mean reversion Jump Economics Applied mathematics Business and International Management QA Derivatives pricing Civil and Structural Engineering Valuation (finance) |
| Zdroj: | Transportation Research Part E: Logistics and Transportation Review. 108:80-96 |
| ISSN: | 1366-5545 |
| DOI: | 10.1016/j.tre.2017.09.002 |
| Popis: | We develop an accurate valuation setup for freight options, featuring an exponential meanreverting model for the freight rate with distinct reversion scales for its jump and diffusion components. We calibrate to Baltic option prices and analyze the freight rate dynamics. More specifically, we observe that jumps dissipate faster than the diffusive deviations about the equilibrium level. We benchmark against practitioners’ model of choice, i.e., the lognormal model and variants, and find that our approach reduces the pricing error while preserving analytical tractability and computational competence. We also find that neglecting fast mean-reverting jumps leads to nontrivial option mispricings. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|
Full Text from ScienceDirect