Rough volatility dynamics in commodity markets

2026-03-27

AI Summary

This study addresses the challenges of automatically calibrating the term structure of commodity futures prices and modeling the Samuelson effect by systematically introducing the rough volatility framework into commodity markets for the first time. The authors develop unified rBergomi and rHeston models that, by integrating stochastic differential equation theory with market data calibration techniques, automatically match the initial term structure and accurately capture the Samuelson effect. Numerical experiments based on WTI crude oil futures options data demonstrate that the proposed models achieve high pricing accuracy and excellent fit in commodity derivatives valuation, significantly enhancing the practical applicability of commodity option modeling.

Technology Category

• Reasoning under Uncertainty: Stochastic Optimization
• Machine Learning: Calibration & Uncertainty Quantification
• Search and Optimization: Sampling/Simulation-based Search

Application Category

• Economics, Online Markets and Human Computation: Sustainability of Web economics
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs
• Web Mining and Content Analysis: Robustness and generalizability of Web mining methods

Abstract

In this paper, we develop a general rough volatility model for commodities that provides an automatic calibration of the initial term structure of the futures prices and an appropriate treatment of the Samuelson effect. After the theoretical analysis of this general model, we focus on the rBergomi and rHeston models and their calibration to market data of vanilla futures options on WTI Crude Oil. Finally, numerical results illustrate the performance of the proposed rough volatility models for commodities pricing.

Problem

• rough volatility
• commodity markets
• futures prices
• Samuelson effect
• volatility modeling

Innovation

• rough volatility
• commodity markets
• Samuelson effect
• futures term structure
• rBergomi model