Volatility and price jumps in agricultural futures prices : evidence from wheat options
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- Discussion papers (FOR) 
Empirical evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices contains a term structure depending on both calendar-time and time to maturity. This paper extends Bates (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in volatility. An in-sample fit to market option prices on wheat futures show that our model outperforms previous models considered in the literature. A numerical example illustrates the economic significance of our results for option valuation.
Revised version published in: American Journal of Agricultural Economics, vol 86, number 4 (November), 2004, 1018-1031.
PublisherNorwegian School of Economics and Business Administration. Department of Finance and Management Science