Research On Option Pricing Of Commodity Index

With the characteristics of high fluidity and transparency,commodity index plays a growing prominent role in the global market and is treated as an important tool for studying the dynamic change of the commodity price.As an important tool for asset allocation and hedging against inflation,commodity index has become an important tool for investors.In recent years,the fluctuation of commodity price,which has pushed the innovation of the commodity index derivatives on developed markets abroad,has been attracting attention by many scholars and experts.Because of its great flexibility,commodity index options allow investors to manage risk and provide diversification for them.However,how to price the commodity index options in a reasonable way has been the focus of theoretical and practice circle.This paper explains the reason why commodity index fluctuated from the macroscopic and industrial angle by reviewing the development process of some famous commodity index at home and aboard.Then,we focus our study on the return distribution,volatility and pricing,which are all quite important in the research on the commodity index options.Also,we investigate the time series of the commodity index and the result indicated that commodity indexes are not distributed normally and generally have high kurtosis and fat tail distribution,which is common in financial data.Then,we analyze a critical parameter that exists in the commodity index option pricing formula,the volatility.By estimating the volatility of the commodity option with two different methods,called historical volatility method and GARCH model,we estimate the volatility of the commodity index and construct a volatility term structure.In the end,we established a reasonable option pricing model for commodity index on the basic of the famous option pricing model—Black-Scholes Model,then we also using the Monte Carlo Simulation and Binomial Model to derive the theoretical price of the commodity index.