Miltersen and Schwartz Commodity Option

This guide introduces Miltersen & Schwartz commodity options, and provides a pricing spreadsheet.

Pricing commodities is often difficult because the various influencing parameters are not known, either at all or to a high degree of certainty. For example, the spot price is often difficult to obtain (often being indirectly calculated from a futures contract near to maturity), and the instantaneous yield is often estimated. Hence pricing models based on future contracts are often used.

The Miltersen & Schartz (1998) model is a closed-form three-factor model for pricing commodity options. It is based on a generalization of the Black-Scholes equation, and its characteristics include log-normally distributed returns and risk-free rates, stochastic convenience yields and interest rates.

Pricing Miltersen Schwartz Option in Excel

The lag between the time to maturity and the time to maturity of the futures price has a considerable effect on the option price.

Download Excel Spreadsheet to Price Miltersen & Schwartz Commodity Option


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  3. Sir,

    I have downloaded the Miltersen and Schwartz Commodity Option model and saved it in my Excel 2003. However an error message appears in cells F5 and F6 for the prices of call and put. No problem have arised with the other downloads. Can you help?.
    Thank you
    Brescia (Italy) 13 Oct 2014

    Reply

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