Cointegrated Commodity Markets and Pricing of Derivatives in a Non-Gaussian Framework

We analyse cointegration in commodity markets based on continuoustime non-Gaussian stochastic processes. Using simple Levy-based processes, we propose a cointegrated spot price model in two commodity markets, and derive the implied futures price dynamics using the Esscher transform to introduce a pricing measure. A simple Heath-Jarrow-Morton cointegrated futures price dynamics is introduced motivated from these considerations. We study the question of pricing spread and quanto options in commodity markets, based on a Fourier approach.