Stellenbosch University
Welcome to Stellenbosch University
Seminar: DepartmentStatistics & Actuarial Science- Dr Mesias Alfeus (University of Stellenbosch)
Start: 26/08/2022, 13:00
End: 26/08/2022, 14:00
Contact:Elizna Huysamen - 021 808 3244
Location: Van der Sterr Building, c/o Victoria & Bosman Street, 2nd Floor, Room 2048

This paper models the hump volatility structure of commodity derivatives markets in the rough volatility modelling framework. The model encompasses the stochastic volatility that may be unspanned by futures contracts. A generalized hump-shaped volatility specification is assumed that entails a finite-dimensional affine model for the commodity futures curve and semi-analytical prices for options

on commodity futures. An empirical study of the crude oil futures volatility structure is carried out using a database of futures prices as well as futures option prices spanning 3 years. Implied Hurst parameters inferred from options on Crude Oil future support empirical evidence of rough Crude oil volatility. We show that rough stochastics model provides a much better fit to both futures and options when compared to the model driven by a classical Brownian motion.