Correct classes for options on commodity futures?

[Ken Anderson-2]

I need to generate greeks and implied volatilities for options on  
commodity futures.  Right now, I'm using BlackScholesProcess and  
VanillaOption.  Is that correct?  I would like to use Black-76, but  
I'm not sure if I'm getting that this way or not...

Thanks,
Ken

[Luigi Ballabio]

On 03/15/2006 08:23:11 PM, Ken Anderson wrote:
> I need to generate greeks and implied volatilities for options on  
> commodity futures.  Right now, I'm using BlackScholesProcess and  
> VanillaOption.  Is that correct?  I would like to use Black-76, but  
> I'm not sure if I'm getting that this way or not...

If I'm not mistaken, you'll get the Black-76 formula if you set the  
cost of carry to 0, i.e., if you pass to the constructor of the process  
a dividend yield equal to the risk-free rate.

Later,
        Luigi


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There is no likelihood man can ever tap the power of the atom.
-- Robert Millikan, Nobel Prize in Physics, 1923

[Ken Anderson-2]

Right now I'm doing this:

FlatForward flatDividentTS = new FlatForward(todaysDate, 0.0, fixed365);

Should I make it the same as the risk free rate?  So like 4.5% right now?

Thanks again,

Ken

On Mar 17, 2006, at 9:53 AM, Luigi Ballabio wrote:

On 03/15/2006 08:23:11 PM, Ken Anderson wrote:

I need to generate greeks and implied volatilities for options on commodity futures.  Right now, I'm using BlackScholesProcess and VanillaOption.  Is that correct?  I would like to use Black-76, but I'm not sure if I'm getting that this way or not...

If I'm not mistaken, you'll get the Black-76 formula if you set the cost of carry to 0, i.e., if you pass to the constructor of the process a dividend yield equal to the risk-free rate.

Later,

Luigi

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There is no likelihood man can ever tap the power of the atom.

-- Robert Millikan, Nobel Prize in Physics, 1923

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[Luigi Ballabio]

On 03/17/2006 05:21:36 PM, Ken Anderson wrote:
> Right now I'm doing this:
>
> FlatForward flatDividentTS = new FlatForward(todaysDate, 0.0,  
> fixed365);
>
> Should I make it the same as the risk free rate?  So like 4.5% right  
> now?

Based on Haug, p. 7, I would think so.

Luigi


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