Title :
Pricing Asian oil options using polynomial quantile functions
Author :
Schlueter, Stephan ; Hanfeld, Marc
Author_Institution :
Wingas GmbH, Kassel, Germany
Abstract :
We construct a polynomial-based modification of the Gaussian quantile in order to derive a functional approximation of any symmetric quantile. Based on this formula we generate random numbers for pricing Asian options on three different oil products (Brent, Gas Oil and Fuel Oil) via Monte Carlo simulation. We find that standard Gaussian-based methods (commonly applied by market participants) underestimate the option value, and suggest to apply the method presented here.
Keywords :
Gaussian distribution; Monte Carlo methods; international trade; petroleum industry; polynomial approximation; pricing; Gaussian quantile; Monte Carlo simulation; functional approximation; oil products; polynomial quantile functions; polynomial-based modification; pricing Asian oil options; Approximation methods; Gaussian distribution; Monte Carlo methods; Polynomials; Pricing; Standards; Time series analysis; Asian Options; Monte Carlo Simulation; Quantile Approximation;
Conference_Titel :
European Energy Market (EEM), 2014 11th International Conference on the
Conference_Location :
Krakow
DOI :
10.1109/EEM.2014.6861203
