| Abstract: | On the commodity market there exist contracts which give the holder multiple opportunities to adjust delivery of the underlying commodity. These contracts are often named “Swing” or “take-or-pay” options. They are especially common on the electricity market.In this paper the price of a Swing option on commodities is investigated under the additional constraint of a recovery time between two different exercise times. We give an explicit characterization of the price function as the value function of a continuous stochastic impulse control problem and prove existence of an optimal control. We investigate the connection between the price function and the solution of a system of quasi-variational inequalities. Finally, we present a numerical algorithm for solving the quasi-variational inequalities, and give some numerical examples.JEL Classification: C61, C62, C63 |
