BARONE-ADESI AND WHALEY MODEL

The quadratic estimation technique for putting a price on exchange-traded American call and put options on commodity futures and commodities. Baron Adesi & Whaley Model was published in 1987 at Journal of Finance and depends on the Merton model and Black-Scholes model. It employs a carrying cost rate and underlying assets as its key inputs. Aside from option on commodity futures and commodities, the model can also be employed to price stock indexes with continuous dividend yields, foreign currency options, long term debt instruments with continuous coupon yields and precious metals.

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