Media Pricing Energy Quanto Options: A Regime-switching Framework with Stochastic Interest Rates

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Pricing Energy Quanto Options: A Regime-switching Framework with Stochastic Interest Rates

uploaded August 3, 2021 Views: 56 Comments: 0 Favorite: 0 CPD
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This paper considers the valuation of energy quanto options in the presence of  regime-switching stochastic interest rates where the underlying price processes are  modelled by Markov-modulated additive processes. Using change of measure and fast Fourier transform techniques, we obtain a pricing formula for energy quanto options on futures. We show the precision of our pricing formula on an energy quanto option written on temperature and electricity futures prices.

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Categories: BANKING / FINANCE
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