Pricing Gas Daily vs First of Month Options

bronsen

New Member
Anyone know how to price an option similar to this one on the CME:

http://www.cmegroup.com/trading/energy/natural-gas/natural-gas_contractSpecs_options.html?optionProductId=2801#optionProductId=2801

It will essentially follow these rules.
  1. The contract will last for 6 months
  2. The payoff is the difference between the first of month index vs gas daily settle price. For example if the first of month index is 3 dollars, the option pays the difference everyday the settle is below 3 dollars, and 0 if it is above.
  3. Every month, the strike changes to the first of month index for that respective month
I am trying to find how to price the option, along with the greeks. The closest option model I've found is an accumulator option or cliquets, but I am not sure if this falls in the same category
 
Top