Close Window

Dissertations, Theses and Plan B Papers -- Abstract

Fan, Rui. Deriving Implied Distributions From Commodity Option Prices: An Application to Soybean, Corn and Wheat Using Mixture of Lognormals.. Plan B Paper, 2001. Major Professor: Hanson. 
-FULL TEXT-
This paper develops a method to estimate the distribution of futures price movements from traded European options using a flexible mixture of lognormals distributional assumption. More specifically, the objectives are: 1) develop an alternative method for pricing commodity options when excess skewness and fat-tailed distributions in the underlying futures price can be modeled as a mixture of two lognormal processes. 2) apply this method to elicit implied distributions from corn, soybean, and wheat futures option prices and test how well this forecasting model predicts distribution. 3) evaluate the performance and forecasting ability of this alternative method.