The Pricing of Commodity Options

Pricing options contracts is not particularly easy to do and there are quite a lot of companies around the world whose business model gravitates around pricing options contracts. Market making options quotes (bid and ask) is a fairly large business which involves investment banks, hedge funds, brokers and independent trading houses. The current research will look at how pricing can differ according to the model being used. To carry out this comparison the options pricing models that will be used are the Barone-Adesi Whaley model, the Bjerksund & Stensland model (the 2022 version), the Black-76 model, the Binomial Tree model and the Black-Scholes-Merton model. This is a general study and therefore is just an indication of how these models work. This research was published on the Medium platform a few years ago but it is still valid today. Please click here to read the rest of the research.

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