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3:2:1 Crack Spread Option Pricing by Monte Carlo Simulations
1. Energy Commodities 2. Crack Spread Options 3. Energy Price Modelling
i. ii. iii. iv. v.
Long-Term Mean & Variance Equations (ArmaGarch) Geometric Brownian Motion GBM Mean Reverting GBM Mean Reverting and Garch Volatility GBM Mean Reverting and Jump Diffusion
4. In sample Root Mean Squared Error
Implied Volatility. 3:2:1 Crack Spreads Murat Gençer 3 . Volatility Smile) Monte Carlo Simulations (RMSE) ii. Single Commodities your company Black Scholes (RMSE.Agenda 5. 1:1 Crack Spreads Kirk Formula 1:1 Crack Spreads Monte Carlo Simulations iii. Option Pricing Modelling i.
Energy Commodity Prices your company Murat Gençer 4 .
of crude oil futures and refined product futures. or spread..e.2xGasoline . Rafinery Input : Crude Oil Rafinery Output : Heating Oil and Gasoline 1:1 Crack Spread : Crude Oil – Heating Oil or Crude Oil – Gasoline 3:2:1 Crack Spread : (3xCrude Oil .1xHeating Oil) / 3 Murat Gençer 5 .Crack Spread Options your company Crack spread options are contracts written on the price differential. heating oil or gasoline futures . i. crude oil.
2fGA .1fHO) / 3 where your company fCS is the crack spread value at maturity fCO is the value of a crude oil future contract at maturity fGA is the value of a gasoline future contract at maturity fHO is the value of a heating oil future contract at maturity Murat Gençer 6 .3:2:1 Crack Spread Options fCS = (3fCO .
ARMA-GARCH Modelling your company Murat Gençer 7 .
ARMA-GARCH Modelling Simulation BackTesting your company Murat Gençer 8 .
Geometric Brownian Motion your company Murat Gençer 9 .
Geometric Brownian Motion Simulation BackTesting your company Murat Gençer 10 .
GBM Mean Reverting your company Murat Gençer 11 .
GBM Mean Reverting Simulation BackTesting your company Murat Gençer 12 .
1)company GARCH (1.1) Volatility Simulation Murat Gençer 13 .GBM Mean Reverting GARCH your (1.
1) your company Simulation BackTesting Murat Gençer 14 .GBM Mean Reverting GARCH (1.
Jump Diffusion your company Murat Gençer 15 .
Jump Diffusion Simulation BackTesting your company Murat Gençer 16 .
InSample Root Mean Squared your Error company The best fitted model is GBM-Mean Reverting and GARCH (1.1) Model ! Murat Gençer 17 .
your Empirical Results .Crude Oil Options company Black Scholes Method The overall RMSE figure for ATM options which have below 1 year DTM is 40%. Murat Gençer 18 .
your Empirical Results .Crude Oil Options company BS Method – Implied Volatility Murat Gençer 19 .
your Empirical Results . Murat Gençer 20 .Crude Oil Options company Monte Carlo Simulations Method The overall RMSE figure for ATM options which have below 1 year DTM is 51%.
your Empirical Results – 1:1 Crack Spread company Options – Kirk Formula Murat Gençer 21 .
1) Murat Gençer 22 .your Empirical Results – 3:2:1 Crack Spread company Options–GBM MeanReverting GARCH(1.
Teşekkürler your company Murat Gençer Murat Gençer 23 .