<t> Your two NG futures are definitely fungible. Fungibility is not the issue here. The issue is vol regime and as you say, seasonality.Your assumption is that both your futures vols are from the same barrel and that they have the same distribution of local variance over time... which in fact is not...

<t>Sorry Wdido, saw that very late, but here we go.I can't be too specific but here is what I can say.1. how to price an option on a basket on commodities? I am especially concerned on the volatility aspect (let us forget about the correlation...)Let us say all underlyings of the index are mean reve...

You need a forward curve model.

ATM Vols is relaltively Common but depends on what you price (does your option depend on skew for example?)Term structure of correlations is mandatory.

The issue is that there there was no storage available in 2006, leading to the heavy contango we have seen until three weeks ago.

<t>ok,the payoff is: MAX(U1 * NOK/EUR - U2 - X,0) The U2 and Strike are in Euros. 1. this implies you have U1 in NOK, U2 in EUR, and so the strike AND the notional must be in EUR. This means also your payoff formula is wrong because your currency exchange rate should be EUR/NOK as below (this reads ...

Now, if you use a stoch. model these days, there is not s single chance for you to get a trade done (if you are a market maker) as the market has reached a level of competitivity never seen before of such structures (SG, BNPP, and JPM very wisely killing the margins on these structures)

<t>I agree with erstwhile you dont need a sto vol model to price this as there is no significant negative convexity of vol. to start with, like for a reverse cliquet or a napoleon. the strcuture is lightly concave in vol if you asset goes up sharply right after inception because if becomes a short z...

<t>(a) only if taxes are paid in EUR and company based in Europe (b) Swaps and Caps(c) same(d) Cap on Libor , down and Out on Jet but this would be both extremely dangerous and not something an airline company would consider seriously. Corr is likely going to be zero, and now is Libor explodes, the ...

<t>- Correlation is the ratio of (1) the covariance, and (2) the product of standard deviations.- if you estimate variances correctly to start with, you are on the right path for covariance.- for the variance, on each assets individually, the lambda to be choosen is the one that minimizes the square...

to start with, any model you would use for currency options.Then you can go with Cornwall, Hurt, Kentwell (CHK)

I agree wit your view Aaronto me (c) seems to be the most likely choice for a government facing low growth and high expenditures levels, unfortunately for most of us with long dated investments for retirement.

two things- Barrier shift (if you digital is at hit),- Time shift (if your option is at maturity),- or both, if the size is large and you can't spread the hedge.

two things- Barrier shift (if you digital is at hit),- Time shift (if your options is at maturity,- or both, if the size is large and you can't spread the hedge.

<t>If your interest is in pricing, the first answer is : all depends on if the date is a monday of a friday, and if the option os a TOK or a NY cut.if you are just marking a book, interpolate in two dimensions and you will be fine, but you ahave to make sure the price you get is no lower in premium ...