AN EMPIRICAL TEST OF THE COMMODITY OPTION PRICING MODEL USING GINNIE MAE CALL OPTIONS

This paper tests the ability of Black's commodity option pricing model to provide prices for over-the-counter Ginnie Mae call options, which are not significantly different from actual market prices. The test is applied to a unique data set on option prices and Ginnie Mae forward contracts, furnished by a brokerage house specializing in trading government-backed securities. The model generates prices close to those actually available when trading is reasonably active.