Details
| Original language | English |
|---|---|
| Pages (from-to) | 177-187 |
| Number of pages | 11 |
| Journal | Energy Economics |
| Volume | 51 |
| Publication status | Published - 1 Sept 2015 |
Abstract
In this paper, we investigate the pricing of crack spread options. Particular emphasis is placed on the question of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast a bivariate GARCH volatility model for cointegrated underlyings with the alternative of modeling the crack spread directly. Conducting an empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance.
Keywords
- Cointegrated underlyings, Crack spread options, Option valuation
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Energy(all)
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In: Energy Economics, Vol. 51, 01.09.2015, p. 177-187.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - An empirical model comparison for valuing crack spread options
AU - Mahringer, Steffen
AU - Prokopczuk, Marcel
PY - 2015/9/1
Y1 - 2015/9/1
N2 - In this paper, we investigate the pricing of crack spread options. Particular emphasis is placed on the question of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast a bivariate GARCH volatility model for cointegrated underlyings with the alternative of modeling the crack spread directly. Conducting an empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance.
AB - In this paper, we investigate the pricing of crack spread options. Particular emphasis is placed on the question of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast a bivariate GARCH volatility model for cointegrated underlyings with the alternative of modeling the crack spread directly. Conducting an empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance.
KW - Cointegrated underlyings
KW - Crack spread options
KW - Option valuation
UR - http://www.scopus.com/inward/record.url?scp=84937907652&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2015.06.015
DO - 10.1016/j.eneco.2015.06.015
M3 - Article
AN - SCOPUS:84937907652
VL - 51
SP - 177
EP - 187
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
ER -