  We introduce a local volatility model for the valuation of options on
commodity futures by using European vanilla option prices. The corresponding
calibration problem is addressed within an online framework, allowing the use
of multiple price surfaces. Since uncertainty in the observation of the
underlying future prices translates to uncertainty in data locations, we
propose a model-based adjustment of such prices that improves reconstructions
and smile adherence. In order to tackle the ill-posedness of the calibration
problem we incorporate a priori information through a judiciously designed
Tikhonov-type regularization. Extensive empirical tests with market as well as
synthetic data are used to demonstrate the effectiveness of the methodology and
algorithms.
