Option Pricing on Renewable Commodity Markets
Sergio H. Lence, Dermot J. Hayes
July 2002 [02-WP 309]
Lence, S.H. and D.J. Hayes. 2002. "Option Pricing on Renewable Commodity Markets." Working paper 02-WP 309. Center for Agricultural and Rural Development, Iowa State University.
The paper motivates and proposes a closed-form option-pricing model for markets such as grains or livestock where the price level can be expected to revert to expected production costs. The model suggests that traditional option pricing models will overprice long-term options on these markets.
Keywords: mean reversion, option pricing, renewable commodity markets.